Sramana Mitra: I want to spend some time on your current company. Summarize for me the home building software company. Is it something that you bootstrapped or raised money for? You were doing it out of Denver?
Patrick Quinlan: Yes. The first one was bootstrapped initially and then we got some high net-worth investors here in Denver. I found some good investors that walked me through it. We raised $5 million. That company ended up losing everything. We had to lay off all the employees in one day. It was horrible. We used the last couple of hundred dollars in our bank account to shred all of our customer information. That was painful. My parents actually made a montage payment for me. I had to start over. This was the fall of 2008.
It was not an easy time to pick yourself up. I ended up at a smaller consulting firm in Denver. That consulting firm had a client called Rivet Software. That company was doing a million dollars in revenue a year. This was in early 2009. They hired me to come in for 90 days to help put together a leadership plan. This guy had invested $12 million into the company and it was doing $1 million a year.
There was a government mandate requiring publicly-traded companies to use software like this. There were four companies in the world that had this software, with this one being the least developed by far. One of them was actually a public company. I came into the organization. I was a consultant for 90 days. Eight quarters later, we did $15 million in quarterly revenue. We went from zero to $60 million in revenue. There were 12 employees when I walked in the door. We had 700 when I left.
Sramana Mitra: We need a step-by-step narration. What was the business? What was the status of the business? What were the first few things that you did when you walked in?
Patrick Quinlan: I put together a business plan. They were all engineers and had two customer service people. They were trying to sell software to publicly-traded companies to meet this government mandate. The owner didn’t know how to sell. He was an engineer. He wrote a good portion of the code himself. I came in and sat down and understood what this government mandate was. This was in 2009.
It required that in the summer of 2010, all companies over $5 billion had to do this for the first time. In 2011, all publicly-traded companies under $5 billion in assets had to then meet the mandate as well. I put together a sales plan. There was about $400,000 in the bank. I hired nine sales guys. I’ve always said the only reason we were successful is because there was this huge recession. Every time we needed to hire people, there’d be a line out the front door. We hired software sales people. I had enough money to pay people for 90 days. You knew who the buyer was. We never actually had a marketing team.
We got on the phone and we told people that it was $75,000 a year if you did it per year, or $150,000 a year if you did it for three years and paid me upfront. We sold enough of those things to not run out of money. I knew we needed a partnership. This was the only thing that made it all work. The direct sales got us through the first six months.
Sramana Mitra: You also need the direct to get the reference customers before you can get the channel to accept to sell you.
Patrick Quinlan: I don’t agree with that one. None of the customers were turning on. The customers were paying us. This was late 2009. Nobody had to file till 2010. What I did was I looked at the landscape and looked who is in this filing business. I quickly saw that RR Donnelley is the company that owns the vast majority of the filing business. What the mandate said is people who used to file in print now had to be electronic and in an interactive format.
If Donnelley had an 80% market share, all of their customers were going to need the filing work. I called the President of Donnelley. He said that he was working with this publicly traded company. I said, “How is it going?” He said not really well. I got on an airplane and flew to New York. I uncovered quickly that Donnelley wanted a solution. They didn’t want a partner. Donnelley is a monopoly in that business. They just needed someone to solve the problem.
The other company was trying to act like they were the experts. There was a conflict. You have a publicly-traded company that thought they had a monopoly and another company that had monopoly on the distribution. I just walked in and said, “I’m willing to work for you. You get all the client recognition. We can brand this stuff Donnelley all you want.”
Sramana Mitra: Your deal structure is more akin to an OEM deal as opposed to a channel sales deal. My comment earlier was more inline with what an Accenture would do. If you want Accenture to sell your product, you will need reference accounts before they take you on.
Patrick Quinlan: Yes, it was the smartest and dumbest thing I’ve ever done. It was smart because it blew the company up. We ended up having nearly a 70% market share. It was an unbelievable 8 months. Because of the recession, we were literally one of the fastest-growing companies in the United States that time.
Sramana Mitra: You also got squeezed on the royalty.
Patrick Quinlan: No. We signed a long-term contract so the pricing was good. The mistake I made was the total addressable market was not very big. It was 5,000 publicly-traded companies at $75,000 a year. If you own 70% of the market, in 18 months, you have another problem.
Sramana Mitra: There is no headroom. You were probably not getting $75,000. You were paying channel fees.
Patrick Quinlan: We actually got a great contract with those guys. They marked our $75,000 up and we didn’t give them a fee. They were able to charge more than I could have charged. They were paying what we always charged.
Sramana Mitra: That’s fascinating.
Patrick Quinlan: The first mistake was small market. The second mistake was we had 70% of it. The third mistake was that all I had was the channel. We were never able to build a roadmap. Then I made a very dumb little mistake. Inside the partnership agreement, I gave them a right of first refusal.
Sramana Mitra: To buy the company?
Patrick Quinlan: Yes. To raise external money was impossible, because everybody knew the outcome. Some day, they were going to give us a reasonably fair price to buy the company.
Sramana Mitra: Did they?
Patrick Quinlan: They put in a reasonable price to buy the company. It was a nice multiple. The owner of the company wanted to keep the company private, so he bought a few of us out at that price. After we left, they ended up buying the publicly-traded company.
Sramana Mitra: Donnelley didn’t buy you. The company remained privately owned by the majority shareholder.
Patrick Quinlan: Correct.
Sramana Mitra: You guys all left?
Patrick Quinlan: Yes.
Sramana Mitra: What year are we in?
Patrick Quinlan: I started in 2009 and exited in Q4 of 2011.
Sramana Mitra: What happens in 2012?
Patrick Quinlan: Going all the way back to Delta and to Rivet, there was this trend of finding something that existed. It didn’t need momentum. We were very good at extending at. We wanted to find a company where there’s no majority shareholder, but had a huge addressable market.
We had a list of six things that it had to be or could not be – had to be SaaS, no majority owner. We found this small company in Denver called Business Controls. This was the one we settled on. We had a solid reputation coming out of Rivet. We went into that, took over ownership, and then very quickly raised $10 million.
Sramana Mitra: What was the premise of the company?
Patrick Quinlan: All publicly-traded companies and most large private companies had a mandate called the Helpline which was an offshoot to the Sarbanes-Oxley where employees could go into an anonymous intake channel and report accounting fraud, sexual harassment, etc. This company had one of the helplines in the world where an employee could do an anonymous report via a phone or web form channel. Then it had this software that you would use to do the basic investigation of that case.
Sramana Mitra: This is Convercent.
Patrick Quinlan: That was Business Controls. When we took that business over in the summer of 2012, we quickly raised a million and a half. Then we raised another amount of money from Azure. While we were doing that, we wrote down a very clear business model that said we were going to build four modules, with 100% internal build. We were going to build a true single-tenant, multi-instant, global-ready product. We released the first version in January of 2013. That’s seven months after we started. We quickly grew the company to 40 employees. We launched the new brand in Q1 of 2013.
Sramana Mitra: When you raised $10 million, you already had clients?
Patrick Quinlan: No client had ever bought the new product or the new brand. For the first six months, we were in stealth mode. Everything stayed Business Control while we were writing all the new code. When we raised the money, there was not a reference.
Sramana Mitra: What you brought in through that other company is not what you used to raise the money?
Patrick Quinlan: The reason that we went into that other company was there were 120 existing customers on that platform on small ASPs. Some of them were large companies. Part of the model we had was, “We got this existing base of customers who we know will get on the phone with us.” If you think about building a SaaS company, there’s the milestone of getting to the first million, getting to $3 million, and then getting to $10 million.
Our view point was that we could rapidly accelerate that first million in ARR. Our first year, we grew very well to the point that we raised additional capital in late 2013 from Sapphire Ventures. We were early-stage for them but they were so fascinated with the business model that we had because of SAP. Sapphire was a spin-off from SAP. The Chief Compliance Officer at SAP took a look at the product and said to Sapphire, “If those guys pull that off, that is game-changing because nobody has ever built purpose-built software for me and all my peers.”
When they fail, Wells Fargo happens. It’s a multi-billion problem when it fails. You had three options with the industry. You can build your own company. They can buy from this company called Navex, or you can work with a company that is doing what Benioff did. We are building beautiful engaging, configurable technology with analytics and reporting on top.
Sramana Mitra: How long did it take you to convert the 120 companies that were paying small fees?
Patrick Quinlan: When you have a really good idea, you figure it out fast. It was a really good idea that we figured out fast. Then we got 30 or 40 of them quickly. Then a lot of the small ones never moved over. We got 70% of the revenue in three months.
Sramana Mitra: Then you went out to get new customers.
Patrick Quinlan: Yes.
Sramana Mitra: What else have you done that is an interesting strategic move, whether it’s accelerators or inflection points in your business?
Patrick Quinlan: You always learn from your failures more than your successes. The beginning of 2013 was really solid. We were able to raise capital from Sapphire. We had a go-to market plan. We had a product plan. Our product plan is utterly consistent with the first diagram we drew. It’s deeper and we know more. We understand it better, but I could still use that PowerPoint to sell that product.
Sramana Mitra: It’s the same strategy and you just executed on the same strategy.
Patrick Quinlan: There’s the go-to market and there’s the product. The product is spot on. On the go-to market side, we learned an extraordinarily painful lesson. At that point, we had raised nearly $16 million on a go-to market strategy that was SMB. We were going to do the Marketo thing.
Sramana Mitra: You’d raised $16 million on an SMB-facing strategy for that product. That doesn’t make sense to me.
Patrick Quinlan: The theory that we were under is that all these big companies were having all this regulatory pressure put on them. Our theory was all the people selling to Ford or Walmart were going to need functioning ethics and regulatory requirements. We built the product that we always envisioned but we built it for an SMB customer.
We put together 17 inside sales guys. Instead of going out and testing, could we really sign up? How do we know we can sign up 10,000 of these in the upcoming years? We built the entire machine and we spent a ridiculous amount of money building that machine in 2013. We got a bunch of low-hanging fruits in the first six months. What we quickly realized was this market isn’t as ready for this as we thought.
Sramana Mitra: I would have guessed right from the beginning. You were finding traction in the large enterprise where there is a lot of regulatory pressure.
Patrick Quinlan: We did not sell to our first enterprise customer until May of 2014. We did the layoffs in the beginning of 2014. It was 74 to 40. We just buckled down and took the message to the enterprise. It was extraordinary. Our first enterprise company was Philip Morris. They deployed our product in 190 countries in 34 languages and told us it had to be up and running in four months.
We had to take an SMB product that didn’t have pagination for employee names and we had to meet data privacy requirements. We had to make sure that the languages worked. Fortunately, we built the product with enough flexibility that we were able to make that shift. In the coming days, we signed on Under Armour and other enterprise customers. Then there was this other plateau that we hit.
We really focused the company on that falling over. 2015 was a flat year. We did very little revenue. The initial customers saw the vision, but everybody knew there’s a difference between seeing it and knowing it’s ready. It took us 18 months.
Sramana Mitra: You had to make it a scalable enterprise-level product. What were the denominations of a large enterprise deal? What are we talking?
Patrick Quinlan: We have four modules that we sell. It’s all on product. Philip Morris bought one module for just over six figures in ARR. Some of those initial customers didn’t pay much at all. Today we are in the mid six figures for a single module. We did make another small error where we tried to sell everybody everything and the deals got too complex. Convercent is your ethics and compliance platform that will bring your program to another place and deliver analytics that will show you ROI.
Because of the data that we hold, the info security that we have to go through is extraordinary. In early 2016, we figured out the contracting and MSA. Our focus is to get to that $50 million in ARR by signing up customers for what they need right now. It’s going to be an awesome opportunity for Convercent. As we keep building out, our roadmap is going to allow us to get that $200,000 customer to $600,000 and beyond.
Sramana Mitra: Currently, how many $200,000 customers have you been able to ramp up?
Patrick Quinlan: We have several.
Sramana Mitra: You have somewhere between 10 to 20 of over $200,000 enterprise customers?
Patrick Quinlan: Right.
Sramana Mitra: It’s almost like a pivot. You have a set of SMB customers, but the business the you’re building today is the large enterprise customers. There was significant reset for that.
Patrick Quinlan: I would agree with that somewhat. On the go-to market side, you’re correct. When we were buckling down, we got out of the PR business. If you got back to the way we talked about the product in Q1 of 2013, it’s exactly the same. It’s helping companies elevate themselves.
Sramana Mitra: The vision and the value proposition is the same but if you double-click down from there, there’s lots of implementation and strategy changes.
Patrick Quinlan: Yes.
Sramana Mitra: Nonetheless, you have identified something interesting. You’ve raised about $50 million in funding?
Patrick Quinlan: Yes.
Sramana Mitra: Do you want to provide any guidance on where you are right now on revenue?
Patrick Quinlan: We’ve grown now, two years in a row, above 75% in ARR. We are over $10 million.
Sramana Mitra: Great. Thank you for your time.