In October 2008, when InsideSales.com was about four years old and had about 40 employees, founder and CEO Dave Elkington faced an entrepreneur's worst nightmare: He was not going to meet payroll.
If you're old enough to read this, you're old enough to recall that the economy was crashing in the fall of 2008. All over America, banks were calling in lines of credit.
"We'd never missed a payment. We had a good relationship with our banker," says Elkington, referring to the line of credit from a local Wells Fargo branch that InsideSales.com was relying on at the time. Indeed, the banker had told Elkington the company had nothing to worry about, even in the midst of the crisis.
But then one morning--October 16, 2008--Elkington noticed there were no funds in the account. The banker explained the decision was way over his head. For InsideSales.com, the consequences were seemingly lethal. "We couldn't pay our payroll or vendors," Elkington says.
It was an early gut check for the company, which was leaning heavily on the credit line. Like most bootstrapping entrepreneurs in fast-growth mode, Elkington didn't leave himself a cushion. He leveraged his cash to the hilt (what he calls a "just-in-time cash flow") to hire aggressively (engineers and sales staff) in pursuit of revenue growth.
At this point, InsideSales.com's only outside funding was a $10,000 friends-and-family investment from Elkington's mother-in-law. How bootstrapped was the company? In its earliest days (2004 and 2005), Elkington and his wife worked graveyard shifts for a cleaning service for spare cash. Every night they primped and vacuumed a doctor's office, readying it for the next day's batch of patients and visitors.
"I erred in my judgment," is what Elkington says, when asked about his decision to lean so much on the credit line. But given the circumstances, it's easy to see how he and the top team at InsideSales.com felt secure--even confident--about their fiscal position, even during the financial crisis.
Since the company's founding in 2004, it had been selling software just about as fast as it could handle. Along with co-founder and company president Ken Krogue, who had helmed the inside sales department at FranklinCovey, Elkington had reason to believe that InsideSales.com was making the next big software product for the sales industry.
From his time at FranklinCovey, Krogue had the idea to integrate a customer relationship management database (such as Salesforce.com) with technology that could capture dialer data from the phone calls salespersons make and receive. A software product capable of this integration had the potential to reshape the way so-called "inside" sales managers lead teams, meet goals, and solve problems.
At this time, thinking about "inside" sales--sales pursued via phone or email or other technology, as opposed to in person--was growing, thanks to an increasing awareness in companies large and small that smartly managed inside sales could drastically decrease your cost of customer acquisition.
Sure enough, once Elkington and Krogue built their initial software product, integrating dialer data with existing CRM systems, the customers started lining up. As Krogue recalls in a June 3, 2013 blog post on his Google Plus page about the company's early days, "We typed 'inside sales' into Google and there were 40,000 companies hiring and not a single vendor in the space."
The savory irony was that a startup whose new software streamlined and smartened the old-school art of cold calling never had to make any cold calls. Instead, customers came to them. And as InsideSales.com continued to amass groundbreaking data about the inside sales process, the customers kept coming. For example, Krogue writes:
We researched how fast web leads need to be responded to and the results were fantastic: 5 minutes was the secret, yet our research showed the average company took 46 hours. Also, we proved that sales people were only making between 1 and 2 phone calls to follow up on web leads, when they needed to be making 6 to 9 calls. The scariest stat of all is that we have tested 17,000 companies and found that only 27% of leads ever get contacted....We built and patented a technology that pioneered immediate and persistent response and were off to the races when companies saw immediate impact on contact, qualification, and close ratios for their sales teams.
These findings are still relevant to inside sales teams today. So you can imagine how they spurred InsideSales.com's first four years of mostly organic growth, leading up to the credit crisis of late 2008. Back then, no software company was anatomizing the inside sales process quite like this.
So while Elkington (with the benefit of hindsight) blames his judgment--and while it's the role of any leader to shoulder blame for poor outcomes--you can see how a first-time CEO would put his faith in his customers' zeal for a potentially game-changing software product.
But now Elkington had a payroll to meet--and no line of credit to meet it with. "We were hugging each other, saying goodbye, and saying, 'Well, we made a good run of it,'" Elkington recalls. Yet the fatalism seemed crazy, given that customers were continuing to buy and rave about the software.
It was then that Elkington's top team, consisting of Krogue and six others, stepped up. They volunteered to go without pay for as long as it took. It was a huge first step in InsideSales.com's recovery from the potential deathblow.
Yet it wasn't enough to close the gap; even without a leadership team to pay, the company was unable to meet its (drastically reduced) payroll without the line of credit. The situation put Elkington in a bind: He now had to call vendors and customers and admit one of two things: I can't pay you (vendors) or I need you to pay me months in advance (customers).
Elkington says "candor and honesty" were the keys to falling on his sword and initiating tense, vulnerable conversations like this: "You say, I made a mistake. I relied on a bank. It's not the bank's fault. And here's how this will never happen again."
Generally, Elkington delivered this news in person, asking vendors and customers to lunch. If lunch wasn't possible, he'd ask them for a 20- to 30-minute phone call to fully discuss the situation.
Understandably, not everyone was receptive to his pity party. "Some vendors said, 'I feel badly but I can't help you,'" he recalls. "Or they'd say, 'Hey, we're in a similar situation' or 'This is outside our corporate policy.' You can't criticize it, whatever they say."
The initial cash-crisis period lasted three days. But after the concessions from vendors, customers, and the top team, InsideSales.com managed to make payroll.
Still, it was hardly time to celebrate. Elkington had learned three large lessons. The first was never to become fiscally dependent on one entity--even if that entity is a bank you trust, even if that fiscal dependence is an easy-to-make monthly payment for a juicy line of credit.
The second lesson was an offshoot of the first. Rather than using month-to-month or just-in-time cash management, Elkington would now give himself a three-month cash buffer. He evolved from "aggressive" growth spending to "aggressive but measured" growth spending.
The third lesson was taking to heart the importance of strong relationships with vendors, customers, and employees. It's one thing to know, on paper, that acing these relationships is how you pass Business 101. But it's quite another to confront your corporate death, and to know you survived because your shareholders were willing to perform fiscal mouth-to-mouth.
"It could've been the opposite," says Elkington. "They could've said, 'Elkington, you're an idiot. How'd you get yourself into this situation?'"
It was around this time that InsideSales.com was the beneficiary of a second savory irony: The national financial crisis that had nearly killed the company--and was in the process of killing countless other companies--was simultaneously strengthening the national demand for InsideSales.com's software.
What was happening, specifically, was that more companies were sacking their pricey "outside" sales employees--the ones who rang up big expenses on dining, travel, and entertainment. To save money during the crisis, these companies were becoming more reliant on cost-efficient inside sales techniques. Which meant demand for a product like InsideSales.com's--which helped make the inside sales process more efficient and cost-effective--was growing.
While the growth provided operational cash, Elkington still needed his CFO to help him stay disciplined about spending on hiring or other growth opportunities (like attending a big trade conference). The idea was not to curtail such spending altogether, but to follow simple rules and to preserve the three-month buffer.
So, when attending the Dreamforce conference in San Francisco in 2008, the company took a minimalist approach. Instead of flying, "everyone jumped into a van." Instead of staying at a posh Bay Area hotel, the team stayed "in a ghetto hotel you'd never take your family to," recalls Elkington.
All employees split rooms, which cost $45 a night. The company was able to embody the word scrappy, which is one of the seven defining terms of its culture.
By 2009, InsideSales.com had rebounded. It made the Inc. 5000 back-to-back years in 2009 and 2010, posting $5.3 million in 2010 revenue. It was the start of the company's fast-growth rocket ride, which would include two more Inc. 5000 appearances, in 2013 and 2014. Elkington says revenue has doubled in each of the past four years, which means 2014 sales were roughly $50 million.
More than this, the tenets of inside sales have become part of the sales mainstream. Last year, Elkington found himself in the enviable position of vetting venture capitalists for ideal terms. It was the VCs approaching him, rather than the other way around.
InsideSales.com ultimately received more than $100 million in funding at a valuation of almost $1 billion. The lead investors were heavyweights Polaris Partners and Kleiner Perkins Caufield & Byers. The large investment in InsideSales.com was a big reason Utah had a banner year of fundraising.
Not that Elkington plans to lean too heavily on that funding. He still maintains the "scrappy" spending disciplines he developed during the company's salad days. Moreover, the company's current line of credit is with Zion Bank in Utah. Elkington says he goes to lunch with Zion CEO A. Scott Anderson once a quarter. Their personal relationship ensures that Elkington is dealing with his bank's top decision maker, as opposed to a local representative.
The payroll now stands at more than 570 employees, including a second office in Salt Lake City that opened last year. Indeed, Elkington has come a long way from cleaning doctor's offices overnight for extra cash. His story is a lesson for all founders and entrepreneurs about the risks of rapid growth, and the rewards of never giving up.