Letting Customers Design The Product: Cornerstone OnDemand CEO Adam Miller (Part 6)

Sramana:Where you able to use those contracts to obtain working capital financing?

Adam Miller: We did two things. Our CFO, Perry Wallack, and I became obsessed with a metric called operating profits also known as operating yields. Operating yields are essentially our billings minus expenses. We were very, very focused on making sure we had operating profits because we did not have any capital.

The SaaS model enabled us to maintain and grow the business based on ourselves. We alwyas made sure our sales outpaced our hiring. Our initial deals were 3 year deals and we have had 95% retention which has enabled us to keep building the business in a disciplined way. We know that what comes in is the baseline for our new income.

We were then able to get SVB and Orrick Venture to give us a term loan based on the cash flow that we could show from the contract. As early as 2004 we had debt financing and that became the way we financed the company for many years. It was debt financing based on the types of contracts we had and their expectation of our ability to grow the business. It was not a factored deal and prior to going public we did an innovative deal with SVB based on the recuring monthly contract value that we have. The beneficial aspect for our business was that all of our clients were blue chip companies.

Sramana: What about the other side of your business. Was all of your online training coming from third party providers?

Adam Miller: Yes, back in 2001 when we were building our pipeline we were told by our prospective customers that the content was interesting but that they wanted to buy the software. That surprised us because when we were initially building our product we thought we were going to sell the content and give away the software.

In 2001 we charged per-use, per-month. A little later on we changed to per-user, per-year, per-client. They did not like variable pricing. All of our competitors were on premise selling big up-front contracts. The only way we could compare to them was by offering our license as a big up-front contract.

By the time we were done engineering our product we had evolved into a full talent management software suite. We deal with every aspect of the employee lifecycle. We start at onboarding a new employee, we manage their training, development, and certification requirements, through the annual goal setting and performance reviews. We help evaluate their competencies and assist in developing their skills based on competency gaps. Organizationally we look at talent pipelines and help companies and individuals understand career paths.

This segment is part 6 in the series : Letting Customers Design The Product: Cornerstone OnDemand CEO Adam Miller
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