Personalized Alerts In The Enterprise: xMatters CEO Troy McAlpin (Part 6)

SM: What is the hardest decision you have had to make as you were building this company?

TM: In 2004 I had to recognize that we still did not have the right product. That was the hardest decision I have had to make with this company. We started with the wrong product, customized it for Nextel, and then tried to take it to other companies. While it fit in terms of features and function, we knew it was not where we wanted to go. It was not multi-tenanted. We had the idea to either be a SaaS provider or at least enable SaaS providers.

As a result, in 2004 I stopped development on the product entirely. I left half a body on maintaining the existing product. We had 200 customers by that time, which was enough to fund the development of a new product. For the next two years we focused entirely on developing the new product set, which was launched in 2006.

SM: You were still solving the same problem but architected it better?

TM: There was a recognition that we were eventually going to solve problems other than the IT problem. That required a new architecture. Prior we were just a forwarding engine. We thought we were fancy because we could change languages; however, we were not understanding the underlying problem. We were not understanding roles, responsibilities, dynamic locations and changing the content of the message as a result.

We had sold a $250,000 system to Citigroup in 2005. At that point I was the CEO, CFO, chief of marketing and VP of sales. I determined that I could not do all of roles things anymore. For the first time I went out and looked for VC firms, but I looked for smaller $200 million to $400 million VCs. I wanted to raise $3 million, and that ended up being an awkward amount to raise. The expectation was that anything under $5 million was in the realm of angels. We went down the path of getting the term sheet with two local VCs when I received a call from JMI. They saw us at a trade show and wanted to talk to us, but I told them I was already too far down the road to entertain new offers. They pressed so I told them that if they had a general partner in my office the next morning then we could talk. The next morning a partner was there. I did a massive amount of reference checks on the firm and I found out that I liked the company. We did a round with them for $3.75 million.

In 2006, the new product came out. It was bumpy to start but by mid 2006 we were in the market. We now had 200 customers to upgrade. The new product set took us to $3 million in revenue. Last year we did $17 million and this year we are on pace to do $25 million.

SM: And you did that with only the angel investors and the $3.75 million Series A?

TM: I wish that was all the money we raised. I did raise another round from JMI in 2005. We got to a point where I felt we could grow faster with more funding. It was a cautious round.

SM: How did your sales dynamics play out? Did you continue to rely on BMC?

TM: We do not rely solely on BMC like we used to because we now have HP, Computer Associates and IBM. BMC is still an important partner, and 35% of our business still comes from indirect channels. We have the most value in IT marketplace in combined architectures. Although we had re-engineered our architecture we did not want to leave IT services. That was the root of our company. I am always worried about getting too far away from my customers, so we have always focused on our markets.

We did find other areas which used the same process. Airlines are good candidates because they need to reach out and notify their customers. Two years ago we realized we were doing the same process as those types of notifications, and if we can solve that problem area in IT we could solve it in business process management. After September 11, a lot of companies started wondering how to get one message to thousands of people. We took what we learned in IT and applied it to that space.

This segment is part 6 in the series : Personalized Alerts In The Enterprise: xMatters CEO Troy McAlpin
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