How I Grew My Company from $100 to $400M

http://www.entrepreneur.com/article/246690

by prostoalex • 11 years ago

88 49 11 years ago

entrepreneur.com

justinsingh• 11 years ago

Okay, so you reach failure. Now what are some tips & guidelines for optimally assessing your failure?

jdsampayo• 11 years ago

Title should be "...from $100M to $400M"

hobr• 11 years ago

In the first paragraph the author states: 'I started a company called Trace3 with $100 and grew it to over $400 million in revenue'.

x0054• 11 years ago

The article it's self is very useful, and I think the advice the guy gives is totally on the money. But to be fair, the article does not cover how to go from $100 to the first million. That's the really tough part. Going from 1 million to 10, and then to 100, and so forth isn't a walk in the park, but that first step is always the toughest.

yeukhon2• 11 years ago

Author has good advice, all come down be a good sales person and act quick. Business is business, don't tango around, enough foreplay is enough.

Though I question 1) whether he already have a very strong network connection to begin with, and 2) looking at some of the most successful companies today, many of them were free product.

alphapapa10• 11 years ago

Well, think about it: selling frobnobs to average consumers at a profit margin of 1% is difficult and risky. But if you can sell fribfrob-as-a-service to the corporate executives that run bigcorps that already successfully sell frobnobs to average consumers, pooling large sums of money together in corporate coffers, then you can do a lot less selling for a lot more profit.

It's like running a landscaping business: you don't go to the poor side of the tracks and offer to mow small lawns for 50 cents. You go to the people who live by the country club and offer to mow big lawns for $50.

yeukhon2• 11 years ago

I guess so. If your product is expensive (for example, running "big data analytic" it makes sense to target at big corporate users, whereas companies like DropBox were competing with other big SaaS or on-premise solutions and they had to gain popularity via average consumers by offering free service at the beginning.

Bamafan• 11 years ago

On some level, I hate articles like this because of all the unanswered questions:

[1] What did you spend that initial $100 on? (Even the cheapest overseas programmer can't do jack for $100)

[2]You mention $400 million in revenue, but how much of that is profit?

[3] What exactly does Trace3 do (if it was so great, I would have heard of it on my own, or you would have explained it in the article, without me having to Google research it)

[4] If things are going so great, why are you writing articles for websites like entrepreneur.com? (oh yeah, you have another thing called POP you're promoting)

[5] You mentioned a "bold" client's advice. How did yo know this was advice worth listening to vs advice to be ignored?

I'll probably get voted down into oblivion, but IMO these kinds of articles say a lot and nothing at all.

alphapapa10• 11 years ago

The $100 must have been spent on phone calls to all the potential clients he asked to tell him why he should not proceed with his ideas. From reading the article, it sounds like this pre-company, ground-pounding, customer-finding is more like finding suckers who would be willing to pay him for his new product/service.

The amazing thing is the POPin product/service he is now selling to large corporations. From what I can tell, it's just software that lets people take surveys and vote on polls so the higher-ups can find out what other people in the company (and supposedly customers) think. Of course, there are mobile apps for it, so it's trendy.

What does it do? It "generates buy-in," and "leverages knowledge" in a "fun and interactive" way to "derive tangible business results." You know the "buffalo buffalo buffalo buffalo buffalo buffalo buffalo" thing, where it's a valid sentence using the same word to mean 7 different things? You clearly could do the same thing with "buzzword."

"Buzzword buzzword buzzword buzzword buzzword buzzword buzzword." And these millionaire corporate execs drink it up and hand over their money! For something they could do already, with existing software, existing employees (who are already paid to do this stuff), and people throughout the chain who should already be communicating back and forth, up and down.

It really makes one wonder if they're all just college frat buddies who, being so insulated from their companies' actual work, budgets, and successes or failures, readily agree to scratch each others' backs at the opportune times. "Oh hey, man, you got a new company selling a new mobile survey app we can use to poll our employees? Well, we could do that already for free, and that's what our managers and VPs are supposed to be doing already--but sure, here's $500,000 for one of your sessions. By the way, aren't you still on the board of the last company you founded? Would that company be interested in buying some XYZ from us? Great, that's what I thought. Good deal."

Their app doesn't do anything new or unique. Anyone could set up a web forum, a wiki, a bunch of online polls--for free. Managers should already be talking to their employees and communicating up and down the chain. Instead of just doing that, they pay this other company big bucks to use their mobile app to do it for them.

And then, after getting a few bigcorps to pay them, they put those bigcorps' logos on their web site, and write an "article" for an entrepreneur magazine, supposedly revealing some business wisdom. Then they link to those articles on their own web site, showing how smart and published their founders are. Then I suppose that sets them up to sell to the next level of suckers, the ones who wouldn't buy in at first.

I can't help but think that it's just like the old Scrooge McDuck comic, "Scrooge's Plain Old Soap." Donald starts his own soap company and sells the same soap in fancy packaging for more money--but it's still just soap. And that's all these guys are doing: repackaging existing stuff and selling it to the execs who have the corporate budgets to burn. Then those execs can point to how they "leveraged knowledge" and "derived tangible business results," and they can then "pivot" those "successes" into their next, higher-paying job.

All of this is not technology--it's salesmanship. He talks about finding "truth" and "value"--but the truth is that he's providing very little added value, merely acting as a middleman repackaging what already exists, then finding people willing to pay extra for it. Barnum covered that a long time ago. Still works, and I guess it always will. But with tech and the Internet, you'd think it'd be harder to get away with that.

Makes one wonder, who are the real suckers? The people buying that stuff? Or the ones not selling it?

RyanZAG2• 11 years ago

I think you're pretty close to the truth here, and ultimately this is what all enterprise deals are about. It's why most "software" companies doing enterprise sales will have far bigger budgets on "sales" than on "research and development". Although the current trend is to push a lot of these "leveraging knowledge" and "finding truth and value" parts of the sales process into "Research" anyway.

It works very well for all parties though - the "sucker" executives on the other side come out very well from this: they can use the marketing materiel and buzzword lingo verbatim from the products they are purchasing in their next few meetings to make themselves look on-the-ball even when they've been doing very little. I'd go as far as to say they're actively looking for products they can buy that they can talk to that do as little as possible to minimize the risk of actually having an effect on their business if they don't work. Security products are a big thing here too.

Ultimately though, something is worth whatever you can sell it for. If you can sell your marketing buzzword lingo and "mutually beneficial enterprise deals" for $100 million, maybe it really is worth that much if it's adding value to someone somewhere.

carrotleads2• 11 years ago

Suckers are the ones not selling it which would be majority of the programming populace..

I have seen top guys code up a entire solution at $X per hr. People who support that solution are able to charge 2X or 3X and who know only 1/10 of it... All cause they know how to speak the language or the sales guy who spoke the language sold it at that level.

People who have access to money are always paying for convenience.. programmers feel guilty charging for such stuff as we are aware of all the free options and generally do it for free.

CPLX3• 11 years ago

It's amusing to me that there's so much venom for an IT consulting business model on HN but apparently changing the contrast on iPhone pictures or posting ahort anonymous ramblings of college students is profound.

inthewoods• 11 years ago

A few comments:

1. Salesmanship is involved in all companies - whether that is done in person or online doesn't matter - it is a fundamental part of any business.

2. Enterprise software sales - particularly to the largest corporations, absolutely does not run like an old-buddy network anymore. While it is true that it is still partially a relationship sell (particularly getting in the door), the amount of hoops you have to jump through in terms of getting buy in from various stakeholders, to getting through procurement, means that it is increasingly difficult to sell to the largest corporations. Average close for an enterprise business is likely between 12 and 18 months.

3. Software is not required to be new, different or any sort of high-level technology to be valuable or sell. While you're right that a forum or a wiki or bunch of online polls could satisfy the requirements, they may not work from a process, security, intuitiveness or any number of other points-of-view. Value is often created in software not from being unique, but from finding a valuable use case that is currently underserved and creating a product that matches that exact need.

carrotleads2• 11 years ago

Something else that bugs me is in the inherent contradiction in his advice..

1. tell people about your concept and ask for money.

2. if people give you money start work.

3. you will pivot 20+ times anyway

Wouldn't that be basically like sell a dream and then figure out a product/service that may make money.

Not much different to how YC like Accelerators/Incubators invest in "teams"..

Shouldn't conmen begin to flock towards such "investors" or are they already?

hayksaakian• 11 years ago

It depends on how magical the concept is.

If someone asks me for an ecommerce site, I'm fairly certain I can deliver it, my client has seen dozens of ecommerce sites so they are pretty certain I can deliver it.

Payment upfront is just a formality at this point.

joelrunyon• 11 years ago

He somehow managed to mention both of his companies and I still have no idea what he "does."

rwmj• 11 years ago

Also - what did the other 999,999 firms do wrong so they didn't make it to $400 million?

logicallee2• 11 years ago

regarding your point 1, let's see what happens if $100 isn't a red herring. Let's call this assumption H+ (a real herring? I don't know. Anyway, it's H+. The entirety of the comment below is from the perspective of H+, i.e. that it is not a red herring, but a meaningful actual seed amount that made a difference.)

If it's not a red herring, then it is far more impressive to turn $50 into $400M than to turn $100 into $400M, as that is a factor of 8million versus a factor of 4 million only. It's twice as good. But turning $1.50 into $400M is even more impressive, as (by H+) in this case this is a factor of 266 million, i.e. 33 times better than a factor of just 8 million. Likewise, if he had turned $1,000 into $400M it would have been only a factor of 400,000 and if he had turned $10,000 into $400M it would have been an even less impressive factor of 40,000. And if he started with $100K, a decent but by no means excessive seed, the factor would have been only 4,000. (There are higher seeds, not mentioned here.)

So we have data points for factor returns ranging from 8 million to 4,000, and (by H+) his data point actually legitimately falls at exactly 4,000,000x return attained.

Now what is impressive is that if there EXIST data points at seed multiples of 4,000,000x return, they should be investable data points around that value, with a capped upside. It should be possible to angel somebody else's business for values ranging from $1.50 (aggregate total fully subscribed seed round) to $9,000 (i.e. 90x as high as the seed round we are discussing from the article). That is quite remarkable, if true. H+ has remarkable consequences.

Retric• 11 years ago

Your assuming all capital can be invested which seems unlikely given <1000$ investments and significant capital.

Assuming a limited 'deal flow' you want to tailor things so you get the maximum total returns not just highest return on invested money.

dkfmn• 11 years ago

For [2] and [3] it sounds like Trace3 is a technology consultancy, integrator, and services provider. So the business is more like "specialized IT for hire" than a new product or innovative technology.

As a result, I'd guess that the $400MM is gross revenue over the life of the company (not annual), and a large portion went to vendors like Avaya and Rackspace that he set-up for the clients.

Then again, this is just reading between the lines, I have no direct experience with Trace3.

gabemart2• 11 years ago

How do you get a company to pay 35k for a "concept", a product that doesn't exist yet and that you can't be 100 percent sure how long it will take to build?

I have some hustle and I know enough about sales to appreciate how little I know about sales, but asking a company to pay tens of thousands of dollars up-front for a product you haven't made yet is something I literally can't imagine. Why wouldn't the company laugh you out of the room? What's the upside for them to pay tens of thousands now, assuming huge amounts of risk, when they could just wait for you to build the product and then decide if it's worth buying? What's their upside?

arihant• 11 years ago

You might want to look into Bill Gates' history with IBM.

huxley• 11 years ago

It doesn't hurt if your mom is on the national board of the United Way with the President of IBM.

ddebernardy• 11 years ago

You do it the same way you sell a $35k website or a $35k/year SaaS product: you paint a better tomorrow that the prospect wants to buy into.

RyanZAG2• 11 years ago

Large, badly managed companies have "budgets" per department that have to be spent or it looks like the department head wasn't working well enough. If they don't spend the budget, someone else gets it for the next cycle. It also gives the (utterly idiotic) impression that the department head wasn't doing a good job because they could have used that money to "grow the business" in some nebulous way. So when you're close to the end of the budget cycle and have 100k left, and a spiffy salesman comes along asking for 35k for his "concept" it looks like a great solution for everyone.

Who knows, maybe it will work out really well and now you've shown incredible "vision". If it doesn't work, you're well within budget and have shown "a great appetite for risk" or something like that.

imaginenore• 11 years ago

How is that any different from any other software project? You talk to the client about their needs, you agree on the price, and you build it.

gabemart2• 11 years ago

How is that any different from any other software project? You talk to the client about their needs, you agree on the price, and you build it.

In other software projects I'm used to, you build something to a client's specifications, and with the expectation you will not license the same codebase to their competitors.

That seems pretty different to getting customers to pay up front for a generic product that will be available on the general market.

danieltillett3• 11 years ago

I can actually answer this. The idea that started my company way back in the 1990s was an ok idea, but it was not fantastic. What was fantastic about it was it had a magic balance between complexity and intuitiveness. What happened when I told people about it is was the first 30 minutes they sat there totally confused, but at some point around the 30 to 45 minute mark they would have an eureka moment where everything would fall into place and they would get it. The effect of this was truely amazing - basically people would come to believe that they had thought of it themselves and of course at that point selling was not a problem - people literally gave me large amounts of money for free because of this effect.

I should mention that while I have had much better ideas since (as well as lots of worse ones), none have ever had that magic quality. All I can say is look for ideas that allow people to discover the eureka moment themselves after 30 minutes. Once you have this you almost can't fail to raise money.

alphapapa10• 11 years ago

How do you get them to sit there for 30-45 minutes while totally confused?

And can't you give some vague idea of what your...fantastic idea was?

matb33• 11 years ago

The author positions his pitch about being all about the product and the value the customer sees in it, when I think a large portion of the potential client's decision to pay 35k is based on this guy's ability to actually bring it to market. If the potential client has no idea who you are, I think it'd be crazy difficult to sell them on a 35k "idea". They'll need to get to know you, and the author doesn't really touch on that point.

rectang• 11 years ago

The heroic solo entrepreneur aspect of this article really rubs me the wrong way. "How I grew my company"? Like one dude deserves all the credit and nobody else employed by the business had anything to do with that 300 million?

The advice to solicit feedback and pivot until you find the true value you offer your customers is fine. How about:

* Engineering and Product advising as to whether the requested features are feasible -- and if not, suggesting creative variants.

* Marketing running analysis and advising as to whether the new product direction is salable outside the small sample size accessible to one individual CEO.

* The little people who keep the lights on.

Probably entrepreneur.com knows their target demographic and I'm not in it. :\

fredgrott• 11 years ago

anybody think that maybe the $100 was the incorporation fee?

How I Grew My Company from $100 to $400M

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