PBX as SaaS: RingCentral CEO Vlad Shmunis (Part 4)

SM: What was the application that you were developing at the time?

VS: It was an answering machine on the PC. We developed the application, and it would not work. We had a meeting with HP up in Boston, and we were getting worried. My chief engineer and I had a sleepless night and found the bug at 5 a.m.We came out and the application worked. This was in 1995. Multimedia PCs were still taking shape, and nobody had seen anything like what we demonstrated. Out of pure shock HP signed the contract.

SM: Were they going to distribute it?

VS: They were going to distribute it with a certain model in France. That was our way in. We then started looking around and found some other companies that had something similar on different chips. We held our own. Some competitors went away, and another key competitor was acquired.

SM: Who was the competitor?

VS: It was a small company called Softnet.

SM: Were there any bigger companies trying to get involved?

VS: There was one, Phoenix Technologies, but their solution was using third party software. We ran circles around them because they could not respond. We ran circles around them, and they actually tried to buy us! At the time I was not interested. Within two years we had ourselves bundled on every name-brand desktop worldwide with two exceptions, Dell and Gateway, which were smaller in those days.

SM: And you did all of this completely self-financed?

VS: Self-financed except that we started getting into much larger contracts. They talked about giving us some upfront fees, but talking was about as far as they got. We actually sold the multimedia business to C-Cubed, which accounted for all of our video offerings.

SM: How much did you get for that?

VS: One million dollars. I avoided the temptation of spending any of it on me. I put it in the bank and for a while had $1 million sitting there. Eventually it was $500,000, then it was $250,000. When it got to $100,000 I got a little scared. We had a sizeable company with 50 people. The thing is, I still did not know about VCs. Finally shipments started coming in, and when that happened things change for the better.

SM: Who was the first major OEM to pay you a licensing fee?

VS: We had one monster quarter were we had Acer, IBM, and HP US wrapped up in three months. Eventually they all paid up.

SM: How were you financing until they paid? What was your workflow?

VS: We survived on that $1 million. We went through $200,000 a month. It took OEMs five months to do a cycle. We already had the deals when we sold the multimedia unit. Here is a word of advice to your readers when they are working with large companies: Try to understand what they are saying. They are not lying to you, but when they say soon they mean 12 months. When they say, “We will deploy you or bundle your product”, you assume that actually means some type of volume. It does not. What it means is that somewhere in their planning cycle they now have an SKU associated with your product. They will easily omit to tell you that it represents 1% of their total volume. It takes a long time for the wheel to turn.

This segment is part 4 in the series : PBX as SaaS: RingCentral CEO Vlad Shmunis
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