How do you turn an idea into a company hurdling to $1 billion at 100% a year? I asked someone at the helm of such a rocket, Derek Langone, CEO of XebiaLabs. His answer is that you have to reinvent the business before it gets to the next level of growth. Otherwise, the company will stall and investors are likely to replace you with a CEO who can.
XebiaLabs is a player in the so-called DevOps market -- software that helps companies develop and test new computer applications -- which IT consultant Gartner estimated would reach $2.3 billion in 2015.
Last October the company had raised $21.5 million in capital in two rounds, according to venture capital information site Crunchbase and said that it had produced "triple digit year-over-year growth for the past three years."
On Feb. 12, XebiaLabs announced that it had raised another investment "of more than $100 million from a group of backers that includes Susquehanna Growth Equity and Accel. To date, XebiaLabs has raised $121.5 million from investors," according to tech news provider Xconomy.
XebiaLabs was spun out of a Netherlands-based software consulting firm in 2009. The company's chief technology officer, Vincent Partington, had developed tools to automate labor intensive code-writing and testing.
Langone became CEO in 2015 to apply his skills in operations and scaling to XebiaLabs. He has delivered growth -- revenue was up over 100% in 2016 and in 2017. The company went from 60 to 135 employees in 2016; employed 140 in February 2018, and expects to hire 52 more by February 2019.
In a March 5 interview, Langone explained how to grow from an idea into a $1 billion company -- focusing on how a company must change as it sets its sites on ever-more revenue.
Here are the five revenue bands that are driving XebiaLabs' growth.
1. The Hardest Part: $0 to $1 Million
You can't get off the ground unless your product solves a big customer problem. As Langone said, "From $0 to $1 million in revenue is the hardest part. Often the CEO can get the first five or 10 customers who are friendly. But the real test is whether a sales person can win more customers in the wild [- winning customers based on the merits of the product and the viability of the company.]"
2. Getting Systematic About Selling: $1 Million to $25 Million
It is much more challenging to reach $25 million in revenue. "From $1 million to $10 million, the challenge is how to repeat the initial success with more customers. Part of that is hiring and managing sales people who can add to revenues. Over $10 million, the company needs to become more systematic about selling and to bring in expertise in new functions such as product management. And the CEO's role is to make sure that these new experts work together well," he explained.
3. Reinventing Everything: $25 Million to $50 Million
Companies must change more dramatically if they hope to reach $50 million in revenue. As Langone said, "The levers that worked to get to $25 million will not help you get to $50 million. There will not be more organic demand. You have to be more aggressive about adding revenue without hiring more people. To do that you need to work with partners. In our case, we had to broaden what our product could do so that we could increase the revenue we received from each customer."
4. Bring In Big Company Experts: $50 Million to $100 Million
Generating more than $50 million in revenue requires revamping the senior levels of the organization. "You need to bring in experts - trading up from people with small company experience to people who have managed important functions [such as working with partners, selling, marketing, and customer service] in much larger companies," according to Langone.
At this stage, the CEO must build an organization that can grow much larger. "You want to hire people who have grown companies to $300 million who can build alliance teams and partner channels. You need to make processes more comprehensive, so people get it right the first time. And you must give employees the opportunity to be entrepreneurs and to take responsibility for achieving results. Everyone has a scorecard," he explained.
5. Seizing New Opportunity: Over $100 Million
To reach $100 million in revenue, every function must participate. "Sales, Marketing, and Product Development must each identify how they will contribute to reaching the $100 million goal. You should set realistic targets and link pay to achieving company and function-specific goals," he said.
While a company is thinking about how to change internally to achieve its internal goals, it must not lose sight of how it will create value for customers. As Langone explained, "Scaling is taking advantage of market opportunity. You have to look at how the market is changing and how customer demand, competitor strategies, and complementary technologies will create future opportunities."
While these ideas seem to be working for XebiaLabs, there is useful wisdom here for other companies as well.