Letting Customers Design The Product: Cornerstone OnDemand CEO Adam Miller (Part 7)

Sramana: The talent management space today is much more mature than it was in 2001. SuccessFactors and Taleo have both had very successful IPOs. Would you talk some about the evolution of the industry and how you evolved with the industry?

Adam Miller: When we started, we were the small fish in a big pond. In 2005 we had a decent client base. At that point I had my first child, and I had the epiphany that we needed to do something or go on with our lives. Growth had been relatively slow, so we brought in someone to do a sales boot camp for us and got us acting like we only had one year to live. That year we transformed the company and changed our name.

Business really started growing in 2005, and we had a good year in 2006. At that point there were still many talent management competitors. We were definitely in the pack behind the leaders. We were ahead of the masses, but we felt we were in the third or fourth mile of a marathon. In 2007 we saw a real surge in the number of requests for software as a service. We realized that was the time to step on the gas, so in the spring of 2007 we raised our first round of venture funding led by Bessemer with Bay Partners. We had 300,000 subscribers when we raised funds.

Sramana: How much money did you raise in 2007?

Adam Miller: We announced a large round of $32 million, $15 million of which was debt we ended up never using. Of the $17 million of equity only $11 million was primary because we bought out some of the early investors whom we felt were limiting some of the channel deals that we wanted to do. We used that money to build out our sales and marketing. We opened up internationally and we started building out our alliance partnership.

Sramana: What has growth looked like from 2007 until now?

Adam Miller: Three years later we had grown to 3 million subscribers. Today we have more than 6 million subscribers. We still have small businesses, but we have enterprise and S&B as well as international, direct and indirect. Today 23% of our business is international.

Sramana: Would you talk more about your decision to go public, including the metrics and the timing?

Adam Miller: We wanted to wait until we could attract a tier 1 bank so we could have a marquee offering. We based our decision on cash flow projections, revenue projections, growth, and other metrics which showed we could generate substantial cash flow. You need a market cap north of $400 million to get a top tier bank. You need that to get analyst coverage and institutional interest in the company. A company must have a clear path to profitability.

Sramana: Were you profitable when you were filing?

Adam Miller: We were not profitable by generally accepted accounting principles (GAAP). We did have positive cash flow from operations in the prior year and good growth in revenue and bookings.

Sramana: What was your revenue when you filed?

Adam Miller: We went public based on 2010 numbers with revenue of $46 million. Today’s Wall Street estimates for 2011 are $72 million to $74 million.

Sramana: You had wind behind your sails with previous SaaS IPOs.

Adam Miller: Yes, Salesforce.com has been a big success story. The big question for us was whether we would be in the A or B group of SaaS companies. There is an A group and a B group of public SaaS companies. One group is high growth and the other is slow growth, and the two groups are valued very differently. Our growth rate was high enough that we were able to get put in the high-growth group, so we ended up getting a multiple in accordance with some of the faster growing companies, which enabled us to have a very strong offering.

Sramana: This is a good story that highlights the importance of staying power. Congratulations on your success to date.

This segment is part 7 in the series : Letting Customers Design The Product: Cornerstone OnDemand CEO Adam Miller
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