
How I Created a $350M Software Company Knowing Nothing About Software - dangrossman
http://techcrunch.com/2015/12/26/how-i-created-a-350m-software-company-knowing-nothing-about-software/#.e2pipa:kPAt
======
6stringmerc
Interesting article and impressive to see that kind of tenacity. Truly that's
a take-away from the full perspective. The other take aways, for me, aren't
nearly as complimentary.

1\. Want to make a lot of money? Find an out-dated system where grunt labor is
worth a lot less than the technology the grunt labor uses, and target this gap
mercilessly (call centers)

2\. Act like every other shady, fly-by-night, asshole salesman and cold call
people without a real product until some sucker from Provo, Utah cuts you a
check ($40,000 should be a good amount)

3\. Aim to arbitrage a stale technology like long-distance phone calls before
any of the competition, pretend getting lucky in such an opportunity is a
validation of tenacity ("blieve in yourself" is trite because it's trite)

> _Believe that even if you do something stupid like quit your job without a
> clue, somehow you’re going to figure it out._

...or, you can study up on something called "survivorship bias" and realize
most of the "wisdom" in the article is utterly useless.

~~~
Animats
No, he made a significant observation - the industry was operating at a high
price point which was no longer justified due to advances in technology.
That's a classic opportunity.

The incumbents in the field won't want to drop their prices by an order of
magnitude, even if the technology allows it. Especially if they have an
expensive in-house sales force. This is a huge advantage for a startup.

This happened to copiers, computer printers, personal computers, graphics
cards, word processing software, CAD software, point of sale software,
encyclopedias... Up next, hearing aids.

~~~
danieltillett
John you make a very good point. Look for industries where the current market
has not kept up with advances in technology due to the business structures of
the incumbents. Even if they want to change they can't (e.g Kodak).

Hearing aids might fall into this category, but unlike the others on your list
you need to deal with the FDA. The FDA should really be called the IPA -
Incumbent Protection Agency.

~~~
Animats
For hearing aid industry disruption, see iHear.[1] Unfortunately, they run on
Kickstarter time. (Like mañana, but without the sense of urgency.) They just
slipped their delivery date from Q1 2016 to Q2 2016.

[1] [http://www.ihearmedical.com/](http://www.ihearmedical.com/)

~~~
danieltillett
I suspect this slip is due to having to deal with the FDA. If you look through
their FAQ and look at the regulation rigmarole they have to deal with just for
their hearing test product you will see why this is not an easy area to
innovate in. The one thing you can give the medical industry is they have
built an amazing system for maintaining the status quo.

~~~
tracker1
Just look at Pharma (subset of medical)... if there is a more disreputable
industry, I'm sure it's only a fraction of the size.

------
iolothebard
I live in a world full of people that love talking about doing things, but
very few of them actually do anything.

This is how I moved to SF. Talked about doing a startup with friends. Move out
there and they'd all rather smoke weed and get drunk than work on our project.

Happens in every facet of life as well. People talk about going to Europe, but
never go. Talk about getting in shape, but never exercise, etc.

Dreams are great, but if you act on them you might fail. Or it might actually
take some thing to accomplish those dreams. Sad that more people don't follow
through.

~~~
matwood
So true. I have a similar story, and can add that people use all sorts of
things to not work on the project. Smoking weed and drinking are common, but I
have found analysis paralysis to be very common in smart people. Executing is
hard for a number of reasons, and the hardest to get over is that you'll
likely prove your idea sucks and was just braincrack [1].

[1]
[https://www.youtube.com/watch?v=0sHCQWjTrJ8](https://www.youtube.com/watch?v=0sHCQWjTrJ8)
(contains cursing)

~~~
golergka
Not necessarily a bad thing.

I started a lot of projects that never took off because I wanted to use the
best tools and in the best way possible.

Projects shmojects, the knowledge of these tools serves me to this day.

------
josh2600
I worked very closely with Five9 for years. I can say that every company has
their flaws but the key thing I took away from my time with them is that
technology is in service of business goals, not the other way around. There
were always discussions of what a "perfect" system might look like, and, every
time, cooler heads prevailed. They simply did what was needed to meet their
business goals and there's something admirable about that clarity.

Is Five9's product the best in call centers? No, but it's about an order of
magnitude cheaper than the top product and works most of the time.

------
dalacv
For those reading this article and wondering about a niche area that is in
need of innovators:

LIMS - Laboratory Information Management Systems.

Here's the deal. Most manufacturing companies (think Big Pharma,
Petrochemical, Chemical, Widget manufacturing, anything really) measure
quality. Those quality measurements are probably done in a laboratory. Every
laboratory generates data. All that data needs to be managed well so that the
laboratory can maintain its accredidation.

Basically, LIMS systems manage samples and lab result data. In addition, they
probably integrate with Instruments and instrument software to automate some
of that data entry. Other industries besides manufacturing are Govt (waste and
wastewater treatment labs), Third-party labs (labs that do testing for other
companies), Healthcare (clinical labs), Forensic Labs, and more.

Bottom line, there are tons of laboratories and they all need to manage their
data. The players in this space are downright stuck in the last decade. There
is so much opportunity here for a few new players.

~~~
danieltillett
As someone who has sells a LIMS module for DNA sequencing the problem is the
people that run theses systems do not like change. You need a scientific
background to run these labs, but the work is very routine. The personalities
that gravitate towards being a lab manager are the personalities that really,
really, really like systems to stay the same. It is a very tough sell to get
them to use something new no matter how good.

~~~
dalacv
You are correct. Change is slower in this industry. That can be both a curse
and a blessing. For validated environments (FDA-regulated industries such as
Pharma), it can be downright glacial.

~~~
danieltillett
It is great once you get a sale since they will keep paying, but getting that
sale is damn hard.

------
jonesb6
"I created a horse-racing simulation game in Applesoft BASIC in Manhattan
Beach Middle School’s computer classroom and ran a small gambling operation."

Great story about a successful business that gained tremendous value based on
domain knowledge and grit. But you can't say you knew nothing about software.

~~~
danso
Yeah...while creating a BASIC game may not seem much to professional
programmers...it's a world of difference from people who know nothing about
software fundamentals, such as how code is just text files. Or the concepts of
loops and functions. Or the necessity of telling a program exactly what you
need it to do, as opposed to learning someone else's software.

------
dyoder
Short version: Convince great software developers to work mostly for stock
options ($150K for 3 employees) and “harass [them] into programming day and
night,“ while selling promises that they will need to back up with working
software.

Not an original strategy.

~~~
djsumdog
The amount of risks everyone in this story took is pretty psychopathic. It's
not sane, but those are the people who make it big. Those are the people we
reward. Those are the people who get away free when the entire mortgage
industry collapsed in 2008.

...and for everyone one of these success stories, there are probably 8,
10...12 or more stories of people who totally failed and ended up with $200k
in debt still paying it off from failed startups.

There's a side not talking about on Hacker News and it needs to be.

------
ErikAugust
Man, does TechCrunch know their target demographic:

"I’ve always wanted to make a lot of money, have people pay a lot of attention
to me and do a lot of exciting things. I just never knew how."

~~~
randycupertino
Haha... I loved his bold open. It was actually refreshing to see such a level
of frank self-awareness of grandiosity.

------
acconrad
You can distill this article into two key insights:

1\. _Find great people to believe in your vision_. Without the two amazing
coders to help him, he wouldn't have made much headway in the project at the
beginning. To be able to convince brilliant developers to quit their job, sell
their house, and move across the country takes an incredible visionary to
convince such a skeptical demographic as the brilliant developer.

2\. _Get people to buy the thing you want to sell before you make it_. He had
$150,000 from a wealthy financier before he had a product to show for it. To
be able to secure capital and then worry about delivering on it is a much more
tenable problem to solve than trying to build a business without some sort of
capital to live off of while you develop it.

~~~
yen223
Isn't this the Theranos business model?

~~~
wpietri
I think the difference for me here was that they took money to create a known
solution to a known problem. Theranos, on the other hand, seemed to have
claimed to have already had a solution, when in reality they were pursuing an
unknown solution to a hazy problem.

(And by "hazy problem" here I basically mean that Theranos is pursuing
something that sounds like a problem (medical testing) but is actually a large
number of only somewhat related problems. For me, going after a known problem
would have been picking one test, or a small number of them and then nailing
that before expanding to adjacent problems.)

~~~
w1ntermute
The difference is between implementation/engineering, which is what most
software companies are doing, and invention/science, which is what Theranos is
trying to do. It's OK not to build something before selling it if you know
that it's possible to make it, but just haven't done it yet because it would
take time/money you don't have. It's not OK if you don't even know if it's
possible.

------
hayksaakian
This is how you know he's good at sales. Always ask for a referral at the end
of every call.

> Then I called him back and asked him, as calmly as I could, if he knew of
> anyone else at his newly acquired startup that might want to create a
> software company with me. I reminded him that I was good at selling shit. He
> introduced me to “Tooter,” who, it turned out, was heading my way to go
> snowboarding in Tahoe.

------
joshstrange
I hate to judge a book by it's cover (or an article by it's title) but good
lord... All it's missing is "this one weird trick".

Edit: Ok now that I've read it I can say I judged it fairly. Survivorship bias
to the max... This guy got lucky and the article doesn't really touch on
anything he did that you wouldn't already expect...

------
pavornyoh
_The day trader pointed to a picture of a small jet on his office wall and
said, “I want you to help me buy this.” He then wrote us a check for $150,000
on the spot, and we were officially funded._

Inspiring and really like this. Sometimes, you just need that one person to
believe in you if you don't have the means...

~~~
tyre
More than believing in you, it speaks to the importance of empathy.

That day-trader didn't want to revolutionize call-centers, he wanted a fucking
jet. As the business owner, recognize where his goals (getting rich) and yours
(getting funding to grow the business) converge.

------
juanrossi
Does anyone knows why his name doesn't appear even once in the SEC S1 filing
[1] for the IPO?

He could have sold all his shares before the IPO, but thought it was weird.

[1]
[https://www.sec.gov/Archives/edgar/data/1288847/000119312514...](https://www.sec.gov/Archives/edgar/data/1288847/000119312514078791/d626745ds1.htm)

~~~
Terretta
The truth was, the company ... didn’t need him anymore.

------
serge2k
> I’ve always wanted to make a lot of money, have people pay a lot of
> attention to me and do a lot of exciting things. I just never knew how.

What's the equivalent of a clickbait headline when it's in the article?

~~~
soared
The title when I repost this to reddit tomorrow?

------
michaelbuckbee
Single most important line in the entire article: "And that’s really how the
curve in our hockey stick began. We finally figured out a way to deliver a
product that was 10x better and 5x cheaper."

------
lazyant
My takeaway: a) have good contacts b) be a good salesman c) be persistent d)
be lucky.

The "believe in yourself" part is to help with point c.

~~~
danieltillett
I would also say that believing in yourself helps a great deal with b as well.
Sales is very harsh on the ego. I am always impressed with how sales people
can handle the level of rejection they get day in and day out. I am a very
good closer, but I am not too good at taking the abuse and rejection that is
involved with cold calling.

------
HiLo
If getting $150k before doing pretty much anything else was standard, it would
be significantly easier to create sub-billion dollar companies. I've looked at
multiple companies that wouldn't have needed further funding at all beyond
about $75k unless they wanted to accelerate growth further, and would have
made all of their participants extremely wealthy.

~~~
eropple
Yup. That's where I am right now. My current project could turn into a
successful, and eventually relatively hands-off, business if I had about $50K
more in the bank than I do right now. So I'm working on it on the side while I
put that together, but it's slow.

------
nickpsecurity
That was a great article. Funny and inspiring. Like to see that for a change.

Far as lessons learned, I agree with 6stringmerc on targeting anything where
tools are overpriced and investing in aggressive, skilled salespeople. These
are proven practices. The first can be tricky, though, because it's often
other factors that keep that tech there. Resistance to change, preferrence to
deal with mature businesses, integration with horrible stuff (eg mainframe
stack), and so on. Not always the case but it can kill startups when it is.
Healthcare systems are a good example as many HN posts show.

------
NumberCruncher
There is a lot of hustling around in this story. One former bookie with
callcenter experience and courage to make tousands of cold calls and one
brilliant programmer involved in illegal activities burning bridges (quitting
job and moving to an other state) and selling software to the 2nd worst
slavedrivers of the 21th century (fast food chains are still worse employers
than callcenters).

------
hackaflocka
"Because a SaaS call center product has to have three phone connections
ongoing per each call center agent (versus the traditional two in an on-
premise model)"

Can someone please clarify why 3 and 2 connections are needed in each case?

~~~
ec109685
In SAS model w/ no voip, a call needs to be made from call center to SAS
system that manages call. They both need one to connect customer to call
center and another call center software to agent.

~~~
hackaflocka
Does this sound logical to you though? In 2009? You're saying that the
software wasn't available online? The call center had to make a "call" to the
SAS system? Could be true but sounds bizarre.

------
mrbill
>"I led the company to $10 million in annually recurring revenues before I
departed."

Wouldn't a more correct article title be "How I created a $10M Software
Company..."? The $350M was after he left.

~~~
akcreek
It would be closer for sure, but $10MM was ARR, so the value of the business
was likely $30MM+. The $350MM number was the value at IPO.

------
jrochkind1
I think he's probably not as big a jerk as he makes himself sound like.

~~~
rhizome
In fairness, he doesn't mention anything about how the people who helped him
made out in the deal.

------
sufiyan
Did he finally become a doctor?

------
anonpoops
ME ME ME ME ME ME ME ME ME ME ME ME

