Servicing IT: ServiceNow CEO Fred Luddy (Part 3)

SM: Did you bootstrap ServiceNow?

FL: In the beginning it was completely bootstrapped. I had a couple guys volunteering who worked on nights and weekends, and that helped me out. However, it was really just me and a dozen customers at that point.

SM: How did you find those twelve customers?

FL: I made phone calls and literally drove up and down the coast of San Diego County to talk small businesses into using our product.

SM: How much did you charge them?

FL: Nothing. They were customers by virtue of the fact that they used our software and gave us feedback. They were wonderful about giving us feedback regarding what was right and wrong. That’s how we went to market. We didn’t charge them money.

SM: How did you get to the next level?

FL: In July 2005 I decided to turn this into a real company. I wanted to generate revenue. I hired five people and raised a venture capital round of $2.5 million from JMI. We then started trying to sell the software.

SM: How did you sustain yourself between 2003 and 2005?

FL: I’m a frugal person, so I lived on my savings. It did not cost much to run a company. Starting an Internet company requires a laptop and 200 pounds of Starbucks French Roast coffee. Anyone with a DSL connection can do it. Anyone can bootstrap an Internet company these days, at least one that’s in the SaaS business like ours.

SM: When you went back to your original twelve customers who had been using the software free and asked them to start paying, how did they react?

FL: Positively. They signed agreements and agreed to pay us. We then went out and got new customers as well.

SM: How much were you charging at that point?

FL: We were charging about $25 a month per seat. We currently charge around $90 a month per seat.

SM: How many seats did your first customer buy?

FL: It was a very small deal. Our very first contract was with a company called WageWorks in San Francisco. It was for $2,600 a year. It took only three months to generate real revenue, so we were ecstatic. We could not have been happier.

SM: How were you selling such small deals? You couldn’t possibly do those all in person.

FL: No, we couldn’t, which is why we absolutely had to find something more scalable. We did start out very inefficiently selling direct. We used the telephone, and we were primarily trying to close deals over the phone. We would visit some potential clients. Each deal we earned became larger than the one before. We recently signed deals for multiples of millions of dollars per year. We have many multimillion dollar customers now.

SM: How do you go from selling $2,500 a year deals to millions of dollars a year deals?

FL: Unfortunately, we didn’t have a grand plan or scheme. We worked hard, but I think a lot of it has to do with luck. We first sold to WageWorks, and the guy who bought us there went to work at Edmunds.com. He recommended Edmunds.com buy our product, and they bought at $35,000 a year. It just started to proliferate and spider out from there. We had more and more customers at increasingly higher price points.

At first we thought we would serve the mid-market, but we quickly found out that we were far more appealing to the global 2000. They have large IT organizations and a lot of employees who are the customers of that IT organization. We wasted a full year on the mid-market. We really thought we were going after a certain market.

This segment is part 3 in the series : Servicing IT: ServiceNow CEO Fred Luddy
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