In early 2011, in a tiny windowless office in San Francisco, two entrepreneurs, Daniel Saks and Nicolas Desmarais, then in their mid-twenties, stared silently at the computer in front of them. On the screen was some heartbreaking news about their startup, AppDirect, which they had co-founded two years earlier and had just launched the day before.

Crowded around them in the room were a few other members of their ten-person team. Although nobody could see it, somewhere outside the building the sun had come up. Everyone had been there overnight, staring at the monitor,waiting for the number of new users to start climbing. But it never did. They were at 5 percent of where they expected to be, and it was clear that the launch was far from what they were hoping for.

It was a harsh moment for Saks, Desmarais, and the rest of the team who had worked tirelessly, preparing for the launch of a business that everyone believed in so strongly.

Deep in the Recession

Back in 2009, before coming up with the idea for what would become AppDirect, longtime friends Saks and Desmarais were working full time--Saks at an investment bank and Desmarais at a large consulting firm. It was the height of the recession and businesses large and small were closing at an alarming rate. One of those businesses was a hundred-year-old furniture company called Saks Furniture, a business started by Saks's great grandfather.

As a child, Saks had worked in the furniture store with three older generations of his family. Seeing the company fold was a huge loss to him, and it made him think deeply about why it had happened. For Saks, the big culprit was the fact that the small family businessno longer had access to the technology and capital to compete in the marketplace. In particular, the systems to operate the business--to track inventory, do the accounting, run marketing and sales, and so on--were clunky and expensive, and put the small business at a huge disadvantage compared to larger operations that could run all these systems with efficient technology.

A New World

When Saks and Desmarais recognized this problem, they began to envision a world where any business could easily find, buy, and use the kind of services they needed to make them more productive and competitive and better able to withstand challenging times.

The two friends believed they could turn this vision into reality by harnessing the power of a technology that was then on the verge of transforming the world--cloud computing. At the time, developers around the globe were creating powerful cloud-based apps for small businesses--apps for every business function--accounting, marketing, sales, and so on. The problem was, few small businesses were taking advantage of these apps.

The Founding

Saks and Desmarais thought they could solve that problem by helping connect the app developers with the small businesses that needed the software, so they left their jobs to build the marketplace to bring these two sides together. They called their new venture AppDirect. Through their research, the two founders believed that small businesses bought their software from the same local providers who sold them other business services like telephony and internet. As a result, they chose a strategy of partnering with organizations--such as retailers and telecoms--that already had strong relationships with small business customers.

For each partner, AppDirect would create a branded app store, where the partner's customers could find, buy, and manage a selection of cloud-based apps handpicked by the partner from AppDirect's relevant catalog of apps--including leading solutions from providers like Symantec,Microsoft, McAfee, DocuSign, and Box.

Everyone's a Winner

It was a concept in which everyone would win. The partners would be able to add value and strengthen relationships with their small business customers. Those small businesses would benefit by running their operations better with cloud-based technology. And the developers who created the apps would have access to millions of small businesses through the partner app stores.

A number of angel investors, such as Eric Boyko, the founder of Stingray Digital (which went public in the summer of 2014, raising $140 million), loved the concept and backed Saks and Desmarais.

Just Like the Movies

With funding and support behind them, the two entrepreneurs set off to realize their vision of transforming how businesses operate. For the rest of 2009 and through 2010, AppDirect invited app developers to their marketplace, signed on their first partner, a large telecom, and began preparing to launch a branded app store with that partner.

Around this time,The Social Network, the movie about the founding of Facebook, hit the big screen. The scene where Facebook launches and hits a million users and everyone is cheering stuck with Saks and Desmarais. They imagined having a similar moment after launching AppDirect with the telecom. But on that post-launch morning in 2011, with only the occasional user trickling in, Saks and Desmarais knew no such moment was coming for them--not anytime soon at least.

Haircut

A few days after the launch, Saks went to get his hair cut. As he sat in the barber's chair, worrying over what to do with AppDirect, he noticed a fifteen-year-old computer and floppy disks sitting on a desk at the back. It made him think of the closure of his family's furniture store, and he struck up a conversation with the barber about how he ran his business.

After discovering that some ancient accounting software was the extent of the barber's technology, Saks showed his barber various cloud-based apps--ones for accounting, booking appointments, scheduling employees, promoting the business, and so on--the barber's eyes lit up. He had no idea these tools existed.

A Picture Emerges

As Saks and the barber talked more, what emerged for Saks was the picture of a business owner who operated in a largely off-line world. The people who had supplied and serviced the barber with his various systems--his phone line, his computer, and software--were people this barber knew in person. They were people who visited his business or who worked at the local service providers.

From this conversation, and many similar ones Saks would have with other business owners in the ensuing days, Saks realized that the essential problem with AppDirect's recent launch was that they had focused their promotion online, and by doing that, they had failed to reach the vast majority of small business owners who--like his barber--bought the systems for their businesses from human beings.

In the Real World

To succeed, AppDirect would have to go beyond just the online world and work with its partners to also connect with their small business clients offline. It would mean training and supporting the partners in marketing and selling the app store through multiple channels, including through the salespeople, consultants, and call center reps who talked to small businesses.

This omni-channel strategy would take time; it wouldn't lead to the kind of explosive overnight success that Facebook appeared to be in the movie, but it could certainly drive growth and create the type of momentum that would eventually encourage millions of small businesses to adopt the software they needed.

With the support of their investors, Saks and Desmarais moved on their new plan. Desmarais began working with and growing the team in San Francisco to build the capability to execute an omni-channel strategy, and Saks started traveling the world signing up new partners.

Snowball

Over the next couple of years, AppDirect launched with several major partners, such as ADP, Samsung, and Comcast, who promoted their app stores not just online, but through multiple offline channels. With reps from branded partners like these talking to business owners, educating them about the cloud, the growth in users of the various app stores started to pick up steam, then snowball. Thousands, then hundreds of thousands of users came on board.

The vision that Saks and Desmarais had back in 2009, of millions of businesses transforming their operations through cloud technology, at last seemed to be emerging.

Unicorn Path

By 2014, AppDirect reached over 20 million users across its branded stores. The company had partners in over 150 countries. The team had grown to 150. In April of 2014, AppDirect brought on a major new investor: Mithril Capital--co-founded by Peter Thiel, who also co-founded PayPal.

AppDirect's omni-channel strategy continued to drive momentum, and today, the company employs 350 people. It reaches 30 million users, has raised a total of $105 million, and is now valued in excess of $750 million.

Closing the Loop

We love the AppDirect story because it's a stunning example of what can happen to a business when it figures out an approach to acquiring customers that fits with how those customers behave…and when they do what it takes to reach that customer base. It's the last mile that's the toughest. Too many startups, especially online businesses, never close that loop between the offering and the customer, because sometimes doing that--as had been the case with AppDirect--means stepping into the real world. Into the elements…

Like AppDirect, our own business, ClearFit, is a cloud-based business, and we struggled in our initial years because we didn't do a good enough job of reaching one of our core target markets--small business owners. It wasn't until we invested in the offline world--building our sales channel, running events, and radio campaigns--that we started to rapidly grow our number of small business clients. So, if you are struggling to convert customers, why not ask them how they currently operate, then bridge that to how they could operate better.

Published on: Sep 10, 2015