Successful Pivot to $5M in Revenue from Chicago: Cohesive Networks CEO Patrick Kerpan (Part 5)

Sramana Mitra: You said you pivoted and there was one product that you had to sell and the other product people wanted to buy. Talk a little bit more about how you proceeded from when you hit that realization? How did you move? How did you take advantage of the market pull that you discovered?

Patrick Kerpan: Good question. It created the opportunity where we got some other incremental funding. We needed some funding to make that transition. We were doing these flexible images where you can mix and match software components to make the virtual computer your choice.

The one missing piece of the software was message queuing. We had servers and databases. In the world of message queuing, you just had this Java component called ActiveMQ. Other than that, you had to use IBM MQ Series or something super expensive. We looked at that and said, “Somebody has to do something. If we’re going to build these Internet-based systems, what we’re going to need is a better queuing system.”

We ended up co-creating along with a partner company in London called LShift. We created the open source RabbitMQ project. One of our founders, Alexis Richardson, spent all his time on that. The partner in London was doing a lot of coding. We got to a point where it was taking a life of its own. We traded Alexis our share at RabbitMQ in exchange for his ownership in Cohesive. We spun that out. VMWare bought that. We did get some more incremental funding out of selling our share of that asset. It became part of Pivotal Labs. It’s a widely used open source project. That was another by-product of us trying to find our way to market.

In answer to your question, the first rendition of how we started to make the transition and be less sensitive to one product line was we got some incremental funding. One of the hardest things was the decline in revenue because we just wouldn’t renew licenses on the image automation and we wouldn’t take any more service engagements. That was hard to do because money is good. I had to decrease the size of the company. I had the hard decision of having to fire some of my friends. You have this doubly hard intellectual decision that says, “These people want us to come do another $200,000 services engagement around virtualization.”

Sramana Mitra: With the networking business, what turned out to be the right go-to market strategy? Was it direct selling, inside sales, or system integrators?

Patrick Kerpan: We’re still answering that question. I’ll tell you what has worked. Cloud is just exploding. According to Gartner and VMWare, of all the virtual machines in the world, 4.5% are in the public cloud while the rest are in private. Public cloud, by body count, is still pretty small. We used the cloud catalogs and Amazon is one of the best. We made a free edition available.

Certainly, we were one of the first solutions to have network virtualization devices in the Amazon cloud. In fact, we were the first. We had a free edition available so that we can catch the cloud early adopter. It’s a generational shift. I don’t want to talk to anybody to buy something. Our early users and adopters are of the type of people who want to solve a problem. They want to go to the Internet and find the solution. When they click on that solution, they have to be able to figure out how they can try it without talking to anybody, have easy access to examples and documentation, and hopefully, they see reviews and commentaries from somewhere.

Sramana Mitra: That’s a big shift in software buying in general.

Patrick Kerpan: We understood all that and I think we moved very early to social as it emerged. Now, people call it content marketing. If you look at our blog, we published a retrospect of e-book. All along we have tried to be really disciplined with the blog. What we’re doing is trying to educate people and give them insight and context. Today’s buyers will look at you and go, “Thanks! Thumbs up for that. If I need what you have, maybe I’ll buy it from you.” We were very early on social. I think we were very early on, what is now called, content marketing.

This segment is part 5 in the series : Successful Pivot to $5M in Revenue from Chicago: Cohesive Networks CEO Patrick Kerpan
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