Capital Efficient Entrepreneurship: Philippe d’Offay, CEO of PMD (Part 5)

Sramana Mitra: After you moved to the Bay Area, what were the next major strategic moves?

Philippe d’Offay: After moving to the Bay Area, we had a product that physicians were very happy with. We were cash flow positive for four straight years. I talked about almost being bankrupt when we were in Atlanta. The turning point was we also had our first opportunity to be profitable. We maintained that momentum. We came to the Bay Area with a profitable company and with a product that was well-respected. We were generating almost 100% of our year over year revenue in new customers through word of mouth.

Sramana Mitra: That, by the way, is the point to move to the Bay Area. If you have any aspiration of moving to the Bay Area, that is the point when you should move. If you move before doing those things and that level of validation, you basically get killed.

Philippe d’Offay: Yes, that’s a good point. It’s funny because before we moved to the Bay Area, we moved to New York City. That was due to the advice of our shareholders. They were like, “You should move to New York City. That’s where a lot of your customers are. Get close to your customers.” Minimize the effort, money, and time involved in doing what you’re trying to do. It probably would not have turned out well for PMD to move to the Bay Area any sooner than we did.

Sramana Mitra: Without customer validation, the Bay Area is not a great place to move to off the bat. It sounds like you came to the Bay Area in 2009 with a relatively solid position. What did you do next to move to the next level?

Philippe d’Offay: We were doubling our licenses year over year at this point. The future looked very bright. We faced a couple of interesting issues. One of them was, I didn’t want to gamble the future of my career and the future of the company on word of mouth. I wanted to reinforce and continue to generate word of mouth, Ibut  also wanted to try to learn how to market our product effectively.

We are a direct sales force type of entity. When you’ve built a whole company around word of mouth, transitioning from that to one where you’re able to effectively generate leads and actually break even or benefit from the efforts that you’ve put into generating those leads was a difficult journey. The other thing that was really interesting is we got to five people. We were starting to hire. We got to six. We got to seven. All of a sudden, everything fell apart. None of us could figure out why. The morale that had always been high and the chemistry that we had with one another and that closeness evaporated.

Sramana Mitra: Why? Do you know, in hindsight, why?

Philippe d’Offay: I do. I started reading these PhD-written documents about group dynamics. It wasn’t called the Rule of Five but it was something to that effect. It essentially said, “In a group of five people or smaller, people can function at an extremely high level. When you start adding people, that group eventually needs to break up into pieces because our brains are programmed to work best in these smaller groups.”

Once I realized that, I split the company. I decided where I wanted to split the company rather than letting the company chance-decide. That was interesting. We said, “It’s not going to be five people sitting around one giant table and just working synergistically. We’re going to start focusing on specific areas of the business.” I started appointing people to focus on specific areas of the business. That’s how we got through that.

This segment is part 5 in the series : Capital Efficient Entrepreneurship: Philippe d’Offay, CEO of PMD
1 2 3 4 5 6 7