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3 Rules for Building a Billion-Dollar Business

At the LA Tech Summit today, a handful of experienced CEOs talked about what it really takes to grow a business.
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Very few entrepreneurs wind up building a billion-dollar company like Twitter or Facebook. Those types of companies, that started with thin business models and experienced fast growth overnight, are the exception--not the rule. So you might want to look elsewhere for lessons on how to build your company. In fact, you might want to review the successes of companies that generated revenue early on with solid business models. 

So it makes sense that executives from three such cloud computing firms were chosen to speak Thursday on a panel about building billion-dollar business at the LA Tech Summit in Santa Monica. During the panel, which attracted a crowd of several hundred people, the CEOs dropped nuggets of advice for entrepreneurs who are gunning for big money businesses. Here are three of their best insights: 

1. Don't let the temptation of an exit drive you. The first question the CEOs fielded had to do with the big news that had the Internet abuzz on Wednesday: photo and messaging app Snapchat reportedly spurned a $3 billion acquisition offer from Facebook. Was the founder crazy? Even Inc.com's own Erik Sherman called it a dumb move.  

But the CEOS had a very different take on the news.  

Steve Singh, CEO and co-founder of Concur Technologies, which makes expense management software as a service and went public in 1998, applauded the idea that an entrepreneur might, instead of focusing on an exit, stay committed to building a company designed to "make life better."

"When you leave fiduciary duties aside, the question is, why are you doing this? What's the objective?," he said. Snapchat, he suggested, has bigger goals in mind.

Even Joe Payne, the former CEO of marketing softwaremaker Eloqua, who wound up selling his company to Oracle for $871 million in 2012, admitted not selling wasn't such a crazy idea. "[Snapchat is] two years in--they feel like the sky is the limit," he said. When Payne heard a few years ago that Zuckerberg had turned down a billion dollar offer, he remembered thinking, "That guy is an idiot." "In hindsight I was the idiot," Payne said. He said he no longer passes judgment on start-ups that decide not to take a big acquisition offer. "They know their business… it might not be so crazy that they're on to something big." 

2. You don't know all the answers--and that's a good thing. Jim McGeever, COO of Netsuite, offered the audience a warning: Ego is one of the hardest things to deal with. "It's the thing that can stop you," he said.  

The solution is to use your data and your people to your advantage.  

"You still need to make hunches. But what's different about being a CEO today is that you have the data to see what you did right or wrong," Payne said. And when the data reveals you are doing something wrong, use that opportunity to own up to your mistakes.

Payne learned this lesson when he decided Eloqua, which was doing well selling its marketing software as a service product to mid-level companies, should launch a similar product for the low end of the market. It didn't take long before the data showed it was a bad decision. "These were small companies that weren't growing--no matter how great are software was." So Payne admitted to the team it wasn't a good business to be in and got out of it quickly.  

It wasn't just a smart move business-wise--it was good for the culture too. When you own up to mistakes, you communicate to your team that they can experiment, too, and it's OK if they don't get it right the first time, Payne said. That's the kind of culture that will attract great talent.  

3. Pay attention to market signals, and act fast. In 2008--just as the effects of the financial crisis began to ripple through the economy--Eloqua was burning $10 million in cash a year.

"We woke up one day and realized money was going to be really expensive the next year," Payne said. So he made a very tough but necessary decision. "We let go of 20 percent of our headcount in one day. It stunk for everybody." But it was vital to the health of the business. From that point on, Payne ran the business at break even relying solely on cash flow. Eloqua didn't raise any money until it went public in August 2012.

In perhaps another move that showed the company was paying attention to what was going on in the market, Eloqua sold to Oracle four months after its IPO. Press reports at the time suggested the tech industry had maxed out on marketing software as a service companies. 

IMAGE: Nic McPhee / Flickr.com
Last updated: Nov 14, 2013

LINDSAY BLAKELY | Staff Writer | Senior Editor, Inc.

Lindsay Blakely is a senior editor at Inc., based in Los Angeles.




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