We celebrate the genius entrepreneur — that intuitive hard charger who senses an opportunity, puts the pieces together, opens the doors, and voila! A smashing success. Trouble is, the genius entrepreneur is largely a myth. Successful business founders are smart, no doubt, but what separates their successes from failures isn’t genius. It is the ability to recognize and react to signals that suggest a need to shift strategies.
You see, the only thing you can be sure of when you start a new venture is that your strategy isn’t quite right. Unfortunately you never know exactly what’s wrong. Great entrepreneurs figure this out as quickly as possible and they recognize that course correction is not the same as failure.
Marc Benioff, the founder of salesforce.com, is a great entrepreneur. As this excerpt from his new book, Behind the Cloud (coauthored by business journalist Carlye Adler), explains, salesforce.com’s first profit model had fatal flaws. Had Benioff stubbornly stuck to it, his company probably wouldn’t be here today. But in changing course, he helped power salesforce.com’s stunning success. Remember: There’s no shame in admitting your first strategy was wrong. Instead, try to learn what is wrong as quickly as possible so you can redirect your course toward success.
— Scott D. Anthony
Excerpted from part 4 of Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company — and Revolutionized an Industry
Because of our mandate to target small business, and in what was probably a reflection of the times, a large proportion of our customers in the early days were Internet start-ups. They shared our appreciation of the Internet, they were early adopters of technology, and they were growing at a wild pace. It seemed that our dot-com clients were calling every day to add new subscriptions. Online search site LookSmart went from five subscriptions to fifty in one month. Our business was booming, and it was largely fueled by dot-com fury.
Then, suddenly, everything started to unravel. Many dot-coms, once flush with venture capital money, began to run out of cash. As many of these companies struggled to survive, we had to deal with the ugly ramifications of very serious user attrition. Whereas some of our customers reduced the number of users, others, such as Excite@Home, pulled out entirely and then folded. By October 2001, the crash had deeply affected our business. We were burning through $1 million to $1.5 million every month, and we were severely cash flow negative. The potential for bankruptcy was at hand.
We needed to implement a new strategy to improve cash flow, and we found ourselves in a seemingly disastrous predicament. Investors were spooked, and valuations were appallingly low, making it an ugly time to raise capital. Furthermore, I wouldn’t have wanted to raise money even had this been the best of fundraising times — additional financing would have diluted the value of all of the original investors’ shares.
On the heels of several unfruitful meetings with venture capitalists, Magdalena Yesil, our first investor and a very active member of our board, approached me with an idea. She believed that our monthly billing plan, which was meant to be a low-risk proposition for our customers, was jeopardizing the financial security of our company. Magdalena suggested that we change our strategy to collecting for a year or more up front and offering a discount as an incentive. Her analysis demonstrated that this would solve our cash flow problem, which was largely created by paying our sales reps a commission based on a twelve-month deal, while only collecting revenue from our customers one month at a time. It was taking two to three months to recoup our expenses on each deal — and that was in the best of circumstances.