Taking a Capital Efficient Company Public and Beyond: Medidata CEO Tarek Sherif (Part 5)

Sramana Mitra: What other strategic moves did you make between the $10 million round and the IPO where you grew revenues tremendously? Was there anything you did strategically?

Tarek Sherif: Yes, I think there are a couple of things. Let me take you back one step. So, we had two mantras when we were building the company. From day one, we always had a very long term view. Some people say that but we really live that. We looked out 5 to 10 years. We made decisions with that in mind, which aligned very well with our customers who make 20 to 30 year bets on drugs.

Before the Internet bubble blew up, people would say, “What’s your exit strategy?” We started the company and they immediately started talking about exit strategies. We said, “We don’t have an exit strategy.”

Our strategy is to build value, to build a real business, and to create value in that way. Good things will come from that. Now fast forward to right before we decided to do our first major round of financing when we got that reception from venture capitalists.

One of the things that became obvious to us was that we were in a space where there was one dominant player, the public company FaceForward. Oracle was, sort of, a player but not really the way we were. Then there were hybrids.

It was a very fragmented market with lots of small players including us. The decision we made was go raise a big round of capital. Back then, $10 million was a big round. Today, it really isn’t. But relative to all of our competitors who had suffered through the bubble blowing up and not getting financing, we put ourselves in the purposeful position of being the number two vendor in the market.

That’s how we marketed ourselves. We said, “FaceForward is number one. That’s indisputable. They went public. But there’s a viable number two that’s being backed by a very strong financial backer.” What that effectively did was that every RFP looking for a vendor always needs to find the top two or three or four vendors.

We were always on the list. We felt very good about our competitive abilities against FaceForward back then. Even though we were a small number two, we were still number two. That gave us a massive edge over all the other vendors that we were competing against. It really differentiated us.

That was the first step relative to the question that you asked me. The other thing that we did was because clinical trials is a global business and pharmaceutical companies tend to run trials all over the world, we opened an office in London back in 2004 and then in Tokyo in 2005. We felt like we needed to have service capabilities in each of the major regions where clinical trials were run.

That ultimately ended up being a very good decision. When a pharma was doing an RFP on a global basis for their next provider of their platform or their technology platform in drug development, we could always say we had a presence in all geographies.

Again, that differentiated us from everybody else. Then we were able to differentiate from the leader in the space with our technology. We had better service, technology, user interface, and higher customer satisfaction. Doctors loved using our technology. That showed up in surveys. So going international early was a very big decision for us.

The other thing we did was we decided early on that we would stay very focused on the core of our business. So it took us a very long time to go beyond electronic data capture (EDC) because we were always worried of getting unfocused. If we lost that focus then we would potentially hurt the core market, hurt our customers, and ultimately our business would fail. That really served us very well. We continued to build momentum and that was an important point in building the business.

The other thing that we did was, philosophically, we always said we don’t worry as much about dilution in building this business. A lot of people, when they start a business, worry about bringing shareholders in and its impact in terms of their ownership of the company.

We had a different philosophy. We wanted the right partner. In terms of the venture capital firm, that would be where we would get value-add from the directors who joined us. But we didn’t care quite as much about the dilution because quite frankly our philosophy was, “I’d rather own a small piece of something very large than the entirety of something that stays small forever.”

So we were very aggressive about that. We brought in great talent. If you ask Glen and me, to this day, the reason we were successful and the reason we’re still running this company is because we attracted people who came from larger organizations and who brought in a skill set.

We were good at delegating to them. We did not get in their way. If you hire a good executive, let them do their job. That’s what you’re paying them to do. We built a very strong team that way and that allowed us to scale the business over a period of time and allowed us to continue to learn as entrepreneurs.

Because you don’t know when you start a seven-person company that it’s very different than running a 2,800-person company. All along the way that journey, having talent that had been there and done that but was committed to the mission and the company was one of the things that we did extremely well in scaling the business. It’s not easy.

Sramana Mitra: Right. It’s not easy at all.

Tarek Sherif: There are aspects of scale, whether it’s revenue or people, where the business just changes. When it’s a small company, you get to know everybody and interview everybody.

One piece of advice again for entrepreneurs is, get a good head of HR even long before you think you need them. I got that piece of advice from somebody else and we did that. If you’re a small company and you are running around talking to customers, trying to build the technology, and doing all the things you need to do to build your business, your head of HR does two things.

They make sure that the culture is intact in terms of the kinds of people who come into the company. They’re your first line of defense in terms of doing the interviews. They also are a great sensing mechanism in your organization for what’s going on.

So the head of HR always sat at the table with us. She was our 12th or 13th employee. She was with us till we reached about 800 employees. That significantly enhanced Glenn and my life in building the business for sure.

This segment is part 5 in the series : Taking a Capital Efficient Company Public and Beyond: Medidata CEO Tarek Sherif
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