There is nothing I think is more valuable to business leaders than hearing stories from successful entrepreneurs. These stories are particularly valuable when they illustrate an important principle that can help all aspiring entrepreneurs boost their odds for startup success.
Last month, one such entrepreneur let me know he'd met a goal he'd mentioned the last time we spoke, in 2017. The founder in question is Art Papas, CEO of Bullhorn, which provides software for professional recruitment firms.
I first interviewed Papas in 2013, when he explained to me how he started Bullhorn and turned it around months before it was poised to run out of cash. Papas started Bullhorn in 1999.
By 2012, the company sported $40 million in revenue when he sold it to a private equity firm for well over $100 million. By 2017, revenue was up to $150 million and the private equity firm sold it to a venture capital outfit for a price I estimate was about $1 billion
In a September 17 interview, Papas shared with me his insights on how to lead a successful venture to ever-higher levels of growth. Based on that interview and previous ones, here are his four insights for startup success.
1. It's better to stumble into a customer pain point than to push a product customers don't need.
Bullhorn -- which is approaching $300 million in revenue and aims for over $400 million by 2025 -- was not always so successful. Indeed, it is how Papas struggled to find the right problem to solve that offers the first insight for founders: Narrow your focus to solving your customer's most painful problem.
Papas started Bullhorn in 1999 but it took until 2008 for him to figure out what Bullhorn was good at. As he explained in an October 5 interview, Bullhorn nearly ran out of cash twice.
The first time was in December 2000, when the company's senior leaders stopped taking salary and Bullhorn could not make payroll for its other 15 employees. It raised money from GE Asset Management and Internet.com with "90 minutes left to make our payroll deadline."
The second time was October 2002. Bullhorn was about to miss payroll without a capital infusion. It closed an acquisition of a small company that had venture capital on October 11, 2002, three hours before Papas's wedding rehearsal dinner. "That was the last capital infusion the company needed before it became profitable," Papas said.
He had "failed -- now it's called pivoted" twice before he lucked into a winning strategy. First, he tried and failed to make Bullhorn a platform for connecting freelance workers with employers. Then he failed to turn Bullhorn into a provider of software for procuring creative services.
But Bullhorn stumbled onto a problem that led to a very successful outcome. Papas met the CEO of a recruiting firm who hired the company to build a database to keep track of his operations over the internet. This contract persuaded his original investors to provide $750,000 more capital.
By solving that business problem, Bullhorn put itself onto a path to success.
2. Private equity can be better than an IPO for financing growth.
Many startups -- particularly those that grow rapidly and burn through cash -- use venture capital investment to sprint to an initial public offering.
However, some software companies that generate ample cash flow are attractive to private equity firms that use debt and a sliver of equity to acquire them. Such financing lets companies access capital without incurring the extra costs of running a public company.
That's why Bullhorn partners with private equity firms. As Papas said, "in the staffing business, everyone knows everyone else. If you have a good reputation, that can help you sell to other companies. By focusing on that niche, we can grow without paying for consumer marketing and our software as a service model lets us operate profitably."
3. Shape employee actions to sustain a great reputation with customers.
I think all business leaders should encourage employees to take actions that delight their customers.
Doing this is critical to Bullhorn's success. As Papas explained, "Reputation drives our industry. They all talk to each other. We aim to delight our customers by measuring our net promoter score (NPS) [a number that gauges how enthusiastically a current customer will recommend the company to others]."
Bullhorn's training and reward programs reinforce employee conduct that boosts its NPS. "We have an internal program that trains staff how to reach good decisions about how to behave with customers -- for example, if a customer calls, call back quickly -- and how they should treat each other. We recognize employees for doing the right thing," he said.
4. Build trust by owning up to mistakes and not repeating them.
To spur a company's growth, a leader must set corporate goals and encourage each leadership team member to set goals for their areas and hold themselves accountable for achieving them.
Getting results depends heavily on trust. As Papas said, "We value taking ownership and managing expectations. To spur the trust on which this depends, it's important for me to admit my mistakes and make sure I don't repeat them."