From Zero to a Market Cap Bigger than General Motors: Keith Krach, Founder of Ariba (Part 4)

Keith Krach: Benchmark fund number one ended up being the best-performing fund in history. We started it. We were going to an offsite. I said, “Paul, can you do a prototype?” He said, “I can’t do a prototype until we talk to a customer first.” I said, “How many do you think we should talk to?” He goes, “I don’t about. About 50.” I go, “What kind of questions should we ask?” He said, “You’re the CEO. You figure it out.”

We went in and talked to customers. We just asked them two things. How are you doing it now? It was a mess. It’s a paper-based process. Then, what would be ideal? You could parametrically change the business rules. Maybe even use internet to hook up with suppliers. I go, “That’s what we’re doing.”

When we went out to talk to everybody, everybody pretty much had the same problem and ideal. A few companies like Sun and Silicon Graphics were writing their own procurement systems. I said, “Why are you guys doing that?” They go, “We’re doing it because there’s such a huge return on investment, and there’s nobody out there.” It’s quantifiable with huge returns of investment. It has been totally neglected. Peoplesoft had already come out. They were doing it on their own because there was nothing else out there.

We got 12 of these guys and we had them present to the entire company what the ideal solution was. We were there taking notes. I said, “All right. Let’s take a break and when we come back, you come up with one ideal product stack.” That was our product spec. People support what they help create. A lot of those guys became our early customers. The next time we did it, we added more. We added about 24. We did it quarter after quarter. It went from 12, 24, 50, 100, 200, 400, 800, 1600. Next thing you know, we’ve got a user conference in Miami.

Sramana Mitra: What were you charging when you started doing Ariba’s B2B ecommerce?

Keith Krach: Originally, we were going to charge $100,000 for a perpetual license. One of the first companies we engaged with was ANB. We were talking to the Director of Procurement. He loved this thing. One of the reasons for doing this was also that when we were selling software, it would always get help up in a procurement department.

I said, “What’s your buying authority?” He goes, “I can sign up anything below $250,000. How much is it?” I said, “It’s about $245,000.” That’s how it was. Then, we went to Cisco. I met with their Director of Finance. He goes, “How much is this?” I go, “This is about $500,000.” One of the sales guys go, “I bet you can’t get a million dollars.” I’m having lunch with a guy and he goes, “How much is it?” I said, “It’s just a hair under a million.” Next thing you know we’re doing $5 million deals up to $30 million deals. We just focused on purchase software. It had the sexiest user interface at that time thanks to Paul.

This segment is part 4 in the series : From Zero to a Market Cap Bigger than General Motors: Keith Krach, Founder of Ariba
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