Ben Kuo: For those readers not familiar with CrownPeak, can you briefly talk about what CrownPeak does?
Jim Howard: We're software as a service, and provide web content and related services. We like to talk about the idea of 360 degree site management, where companies and organizations can come to us and we can handle all the infrastructure for web site management. So we'll provide web content management, site search, RSS, email campaign management, web analytics, and web hosting, and so on.
BK: We talked awhile ago. What's new with the company?
JH: Well, what's new is we've gone out and gotten some venture funding. We've ramped up our marketing and sales efforts. But otherwise, pretty much things are the same--which is a very good thing. Five years ago we started the company with the objective to be the best web content management company in the world, and we're working very, very hard toward doing that. We've definitely captured the lead spot in the hosted web content management sector, and are far and away the most disruptive company in the sector, and are capturing more customers than any other company in the content management area. Really, the only thing that has changed is we have a lot more customers. We have a lot more revenue, and lots more funds to continue to bang the drum on our marketing message.
BK: You were pretty unique in that you bootstrapped, and were very profitable. Why'd you decide to go out and get some funding?
JH: It's interesting. We took the funding sixty days ago, and we just had our board meeting where I turned in our results. We're still highly profitable. We have been running a rapid growth, breakeven or profitable business for the last five years. The reason we decided to take venture funding was our direct competitor, a company called Atomz, was acquired by a company called WebSideStory, which recently had an IPO. So, we've seen a lot more activity and competition since. They have deep pockets now. We're the leader in the content management sector, and we have concerns that we could get out-marketed. So we went out to get some funding. It's a very, very nice thing to get funding later in a company's history, because you don't need to give up control of a company, you can get a very nice valuation, and you can often get multiple firms bidding for your business. So we were able to choose the firms we liked, a couple very, very much, and combine them into a syndicate deal. We have fantastic board members, who have been providing us lots of value.
We have now gone out and expanded our marketing programs. We have gone out and are more aggressively acquiring customers.
BK: Earlier you talked to me about how many VCs you had approached. Can you tell me a bit about that experience?
JH: We went out and pitched a total of twenty one venture firms, out of those ten or twelve we had second pitches with. In the end we went with two venture firms, Sigma Partners, out of Menlo Park, and Altos Ventures, also out of Silicon Valley. The advantage of going with those two firms is we were able to get a top partner on our board, and each one of those firms has deep pockets. So, if we do decide to go out for another round, there should be money there for them to participate. It was an interesting process, it took a long time. Our first meetings were in August of last year, we closed the funding in March of this year. It took, personally, fifty to seventy percent of my time on fundraising. Fortunately the team here is very strong, so I don't need to be involved in moment to moment operation of the business. The business grew quite rapidly when I was distracted.
BK: I often have entrepreneurs, especially in an environment like this where capital is flowing quite readily, ask me how to pick a VC. How did you decide on Sigma and Altos?
JH: Well, I guess there are two parts to that question. You can't always pick. So you're in a very fortunate situation if you have more than one venture firm investing in you. Out of those twenty one meetings, there were many firms who said "I don't get what you're talking about" or said "Gee, we don't like software these days". The key for CrownPeak was spreading the net quite wide. We went out with our contacts--our bankers, the CEOs of other software firms were able to make some introductions, we have some family members of the firm here who have done significant fundraising--and probably sent out our prospectus to 34 venture firms before those 21 meetings.
The way we picked Sigma and Altos is that we were very front on our objectives for the business and how we intend to operate the business. Even the many firms that were interested in us by virtue of our success or business model, didn't quite have a meeting of the minds in our approach to spending, approach, and hiring. We are relatively cautious business managers. So we were looking for people who have operational experience, who understand our business approach, and were less likely or unlikely to have personality or philosophical conflicts with us. That chased a bunch of investors away, but in the end we ended up with investors who agreed that this was exactly the business direction we should be taking.
BK: How many people do you have now at the company?
JH: We're just under 20, but we're about to break that mark and go flying over that. We've been very proud of running lean and mean and not bringing in non-core elements of our business. But, we're becoming large enough our professional services group, our support group, and our sales organization has been growing. We anticipate we'll double in size over the next 18 months.
BK: Do you know what kind of people you are going to hire?
JH: Yes, I do! We are going to hire very smart, hardworking, and nice people. Those are the three very basic things. We have smart, hardworking, and very nice people working at this company, and we're going to continue that. The smarter the people you can find, the more things that will happen automatically. We pay very well, we are very flexible with travel and work schedules, and we do that because then problems will resolve themselves. We are very careful who we bring on?
BK: You've been able to grow a very healthy business with very few people. How did you do it?
JH: A lot of this has just been by virtue of our model. The vast majority of our revenues come from software subscriptions. We have customers who subscribe to our software, we have a services group that implements and customizes the software for them, and then they run on the software. We get checks periodically from those customers, and we have a very low customer loss rate. Our customer retention rate is in the mid-90's. And take in mind, some of our customers hire us for a one year project and go away. So we effectively have a very sticky product. Once you get a customer they tend not to go away. We then get a check every month, or every year depending on the contract, so the amount of service and support we have to provide is very low. The way our business model works is every quarter we add customers, and that adds to our base of billing. And then, the next quarter we add more customers, then we add more customers, occasionally there are changes on the customer side and support, but the majority of work at CrownPeak is one, two, or three months of the customer relationship. After that there's relatively little effort for us to manage and maintain those customers. So, our professional services group is relatively small, we're able to outsource elements of those services; our support group is relatively small, and our software development and software infrastructure and security group is relatively small; so the only place we really have large hire requirements are in the services group and then the sales organization. It doesn't take many people to run a very effective software as a service organization. It's not human intensive.
BK: Why is it that companies go with your hosted service, rather than doing it themselves?
JH: If you're buying a commercial software application, that costs $250,000, maybe down to $70,000 dollars, and services to get that up and running are minimum 1x, but probably 2 to 3x, and you have to own and support that software over well. If you don't support it well, your website starts to stink. With CrownPeak, we cost $3000 a month, and that includes service and support, and have you have someone waiting by the phone 24x7, ready to change that content anytime you need it. We're so much less risky, so much more effective, and service and support is so much beyond compared to an internal service organization. IT organizations are just too taxed and have too much to do. This is what we do. It's a total no-brainer to buy web content management this way. We just did a review of the market and asked what percentage of the market is looking to review web content management as a service. And the answer was 85% of the companies. The 15% who aren't considering the model? They're doing it because of voodoo. There's no rational reason why people wouldn't consider this.