Building an Analytics Company to $10M+ in Revenue: Mode Analytics CEO Derek Steer (Part 3)

Sramana Mitra: Let’s go to the beginning. How did you start? What was the first product? What customer did you go after? Talk about your entrepreneur journey.

Derek Steer: The first thing we did was our first mistake. We knew what the product should look like for companies to use themselves. We had a good understanding of the toolset or workbench for the day-to-day data analyst or scientist.

We saw the opportunity in connecting people in different industries. If you remember back in 2013, GitHub was starting to take off. People were pitching for GitHub. There were a couple of things that people liked about GitHub.

One of them was the power of the open source community tied together in a particular platform. We felt that if we could replicate that in the data world, it would be tremendously powerful.

At a basic level, every company cares about the same stuff. Are your customers coming back as repeat customers? There are lots of models for that. Every company has their model for that. Wouldn’t it be nice if we could build on that knowledge in a shared way that opens our software community?

This is a miss for us for several reasons, but I think it boils down to two things. The first being, it wasn’t the behavior that people were already taking. GitHub took open source software, which was happening already, and made it easy to develop. We were not piggybacking on a trend. We were trying to invent one.

The second thing was, we underestimated how much people were scared to leak proprietary secrets from their company. They did not want to share the data that they worked with or anything that could represent that data with people outside of their company.

It was a miss, but in an interesting way, it led us to one of our biggest successes – the platform that we use to try to spur this open source community. We used to build this SQL tutorial which did solve a real need because at that time, people were trying to learn data analysis skills because it was a hot job and they wanted to enter the job force.

This was the first publicly available tutorial aimed specifically at data analysis as opposed to a SQL for software development. This thing now gets hundreds of thousands of unique visitors every month. It’s a huge brand builder for us and it cemented our position as an important company in the modern data world.

We have gradually undone the first thing we did and moved away from it, but it also helped us in something that has been a lasting asset. 

Sramana Mitra: Talk about financing. How did you get the business off the ground?

Derek Steer: We did something that I would not recommend to most people. Again, a lot has happened in the last seven years that has changed the environment. We raised money on day one and we did it through the executive team at Yammer primarily.

Our first round was a friends and family round, but it was also people that we’d worked with before. The importance of this was that those people were well-connected in the industry. More importantly, it gave us credibility that helped us.

They knew what had been built and these were people who had a lot of information about the founding team of Mode and put in their money toward it. That spoke volumes. I didn’t appreciate it fully at that time, but I now understand that to be one of the most critical things in our ability to get follow-on funding.

These were people who were respected in Silicon Valley, and they believed in us. People talk about venture funding as being an insider club that is hard to break into or to get. I used to think that the way to do it was to work at a reputable company like Facebook so that you could get the brand on your résumé.

I don’t think that is the case now now. It’s about referenceability. The reason to work at a company like Facebook or some other one that people know is that investors know people who work at Facebook. If people can say great things about you, that’s the easy way to get funded.  

Sramana Mitra: Let me comment on this while we are on this topic so people can unpack what is going on. In the early stage, when you don’t have anything, you don’t have a product, no customer, and have literally no validation. It’s a pre-product market fit situation.

The only thing that you can do is raise friends and family money. I think the equivalent of friends and family money is what you are describing – your bosses and people who know your work. These are people who are betting on you and not betting on your business idea necessarily.

Yes, they have information and they draw from that information but they are also betting on you knowing your quality of work and experience so that they can say that these are people who can figure it out. That’s the big difference. 

Derek Steer: You nailed it there. The thing I would say here is, we had the ability to raise money on day one and so we did. TechCrunch had programmed us to think that was the appropriate thing to do whether it’s an explicit recommendation or not. We fetishize big venture rounds in Silicon Valley as a community.

Sramana Mitra: Yes, and TechCrunch is the culprit in doing that.

Derek Steer: I don’t blame them. I understand why they do it. They provide a valuable thing, but for newer aspiring entrepreneurs, it sets weird expectations that aren’t always right – the notion that every business has to raise venture.

If you work at a venture-backed business, you probably just assume that it’s what businesses do without thinking too hard about it. That was certainly the case for me. If we hadn’t raised money, it would’ve sharpened our thinking of this GitHub for data world where we wouldn’t have time or resources to toil on a problem that didn’t exist for people.

We would have quickly found our way to a business that was making something that people want. It is about building something that people want. The leaner you are, the closer you are to it.

This segment is part 3 in the series : Building an Analytics Company to $10M+ in Revenue: Mode Analytics CEO Derek Steer
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