Building a Fat Startup: Apptio CEO Sunny Gupta (Part 6)

Sramana Mitra: You didn’t go after the Goldman kind of customers from where you picked up the idea. You actually went after the smaller customers to get a feel of the product.

Sunny Gupta: I wanted to get the product and security model validated. I was talking to the Goldmans of the world all along, but I was trying to get the first five customers who were willing to pay me a check. The buying process of large companies tends to be longer, as you know. The validation cycle tends to be longer. They need a richer feature set.

What’s interesting is I’m getting five of these logos and I’ve got another five or seven in the pipeline. This seems like it is going to be a transactional solution. One of my first customers in Seattle was Starbucks but it wasn’t all of corporate Starbucks. It was a small department managing desktops at Starbucks. I’m thinking it’s a departmental enterprise sell or a small company IT sell. That’s where we were starting to optimize our feature function for. Even though the first customer was $1,000, our price points are really trending towards $50,000 annually for the seven customers. It’s an annual subscription paid up front.

Then what happens is I’m talking to the big customers. Three things happened to my business over the next year. One is, Merrill Lynch became a pilot customer for small dollars as a proof of value for us. That was very intriguing because they started to throw a lot more complexities at us. Two is, J.P. Morgan Chase became a customer. They really saw the vision and they were struggling with this.

The third thing that happened is Cisco became a customer – Cisco IT shop. I’m talking to them much more deeply now and they’re telling me how pervasive this problem is. With the combination of these three customers, our price points start to push up drastically into millions of dollars. That’s the transformation I would say we went through in the later part of 2008 and early 2009. Remember the industry is going through utter chaos at that time.

Sramana Mitra: It’s amazing that you were able to close customers like Merrill Lynch against that backdrop.

Sunny Gupta: I used to go to these financial Wall Street customers – not the ones I’m naming – where I was supposed to meet with an executive and the executive didn’t show up because he was let go that morning. If you remember that time, even as individuals, we were thinking the world is about to end.

Sramana Mitra: Absolute panic.

Sunny Gupta: We were panicking. It also taught us that the more pressure on the IT budget, the more optimization they had to do and the more decisions they had to drive to shift dollars from running IT to innovations. We started learning the principles of optimization related to the platform that we had built. We had built a really killer next generation, in-memory business intelligence activity costing engine for IT. We had made some incredible technology but deeply rooted in the platform was a decision-making engine which could allow a lot of our customers to take operation and financial data, and make a lot of what-if decisions on top of it. We started to learn the strategic importance of the enterprise playbook at that time.

We got to the first $6 million pretty easy on an annual recurring basis by 2008. Once we got the three to four big customers, we invested heavily in customer success. I told my team, “It’s not about making money. It’s about delivering customer value because these three to five customers are going to help us get to the next hundred customers.” I look back and think, “This is more of an enterprise play.”

Everybody in the SaaS world was telling me, “You cannot build a SaaS business from the top-down perspective. You have to start like how Salesforce started.” All the venture capitalists are telling me that. The model we followed was closer to the Workday model because we felt that what we were selling was very strategic. We are selling to the CIOs of Fortune 500 companies and this is transformational. That’s when I started pressing on the gas in terms of building a real enterprise Salesforce.

Sramana Mitra: How much runway did you have? You said you only spent about a million in the first year. Going into the financial crisis, you had a good chunk of cash left and you have started generating revenues, is that where we are at the end of 2008?

Sunny Gupta: Let me just think about the timing. You can call me the fat startup but we did not have any dirt for capital raise at that stage because the minute I delivered the first V.1 of the product with five to six paying customers, ventures were knocking on my door even in the summer of 2008. I believe I ended up raising another $14 million at that time.

Sramana Mitra: Before the financial crisis hit, you already raised another $14 million?

Sunny Gupta: Yes. We were bickering over $10 million of valuation here and there. In 2009, we raised another round. People were standing on our doors. To date, we’ve raised $136 million of capital and we’re sitting on a big part of that capital still in our banks. We’ve always been capital-efficient, I would say. Balance sheet is super strong. Every time I raised the money, I never really needed to raise the money, if you will. That was the other learning – raise the money when you really don’t need to raise it. By the way, there’s no substitute for market customer validation. I had paying customers. I had customers willing to speak on my behalf.

This segment is part 6 in the series : Building a Fat Startup: Apptio CEO Sunny Gupta
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