Leadership

Conversation with Greg Gianforte, Founder, RightNow Technologies

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It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Greg Gianforte, CEO and founder of RightNow Technologies, to learn how he created a $200M IPO from a bootstrapped venture.

Headquartered in Bozeman, Mont., and founded in 1997, RightNow delivers the high-impact technology solutions and services organizations need to cost-efficiently deliver a consistently superior customer experience across their front-line service, sales and marketing touch-points. Approximately 1,800 corporations and government agencies worldwide depend on RightNow to achieve their strategic objectives and better meet the needs of those they serve.

Venture Capital Raised/Used: $32 million in two rounds (1999 and 2000)
IPO: 2004
Market Capitalization: Approximately $200M at IPO
Exit Value to Capital Used: 6.25x

For Greg Gianforte, talking to potential customers – market research – was the foundation for an entrepreneurial business venture that was cash-flow positive from day one. In 1997, Greg noticed that the Internet was effectively changing the way that companies and their customers communicate. Companies were being inundated with e-mails from Internet users who needed help or wanted to find information online, and they had no good way to respond to all inquiries quickly and effectively. He thought there had to be a better way to use the internet for customer support.

After spending a few months calling on 400 potential customers to better understand their challenges, Greg – a programmer by trade – focused on developing a self-service web application that businesses could integrate with their web sites to better respond to customers. In just two months, Greg had the first product, which sorted FAQs by user ratings on their effectiveness – that’s it! It was simple, but ahead of other market offerings, and enough to start working with customers.

In January 1998, Greg focused on selling his application and brought in more than $10,000 in revenues by himself. “That was my proof point,” said Greg, who was the only employee at the time and was not drawing a salary. He then only hired 100-percent-commission-based sales people and the business was on its way. “Many entrepreneurs think they need to raise a lot of money because that is how they will develop a great business plan. But that’s usually an excuse for not having thought through their business plan well enough.”

Greg, who also is the author of the book, “ Bootstrapping Your Business: Start and Grow a Successful Company with Almost No Money” – explains how he built RightNow Technologies, Inc. into a company worth approximately $500M and shares his views on raising capital to grow entrepreneurial ventures.

Javier Rojas: Why was your business model successful?

Greg Gianforte: The beauty is that I didn’t build something at first, I only did market research. In 1997 vendors in the market only focused on helping companies answer their e-mails faster. I didn’t think that was the best solution because customers don’t want to have to send an email request and wait for a response. They want immediate access to information 24 hours a day, seven days a week.

My idea was a “self-learning knowledge foundation ” – or smart FAQ – that initially was nothing more than a question at the bottom of an FAQ page that asked if the answer was helpful. It solved the problem – letting customers help themselves and reducing e-mail. By working with my customers I was able to evolve the RightNow offerings into the most sophisticated Software as a Service Customer Relationship Management application.

JR: What was the key to being cash-flow positive from day one?

GG: I needed to sell the product to bring in cash. I hadn’t taken a salary, so the revenue just accumulated. After about three months of selling the product myself, I had 40 customers and decided to hire three sales people, who worked exclusively on commission. From that point, the business took off, and we were doubling revenue and employees every 90 days.

JR: When did you raise venture money?

GG: We didn’t raise money until we were over 150 people, so we were already successful as an independent business. In 1999, we decided to raise money because the valuation was very attractive. We did our second round in 2000, and in total raised $32 million.

JR: What challenges did you face with regard to raising outside funds?

GG: When we got our second round of venture capital, there was a lot of pressure to spend the money. At that point we went cash-flow negative, which I believe we may have been better off not doing. When you go cash-flow negative, you lose the discipline of running a cash-flow positive business and then it is much more difficult to get back into the right mindset.

When you’re boot-strapping a business, all investments tend to be incremental. But when you raise the money, you tend to make bigger bets that have higher risks. We’ve now gone back to our roots and are approaching our investments incrementally. That doesn’t imply that we’re growing slower, it is just that we are making wiser decisions about our investments.

JR: What were the positive outcomes of spending the venture money?

GG: We were able to establish a strong presence in Europe, the Middle East and Asia. Doing that early has served us well. If we hadn’t had the venture money, we would not have made those investments as early, or as significantly. Entering each country is like starting a new business, and it takes time and investment.

I believe you raise the money when you need to grow the business – that is, if there is a very specific business opportunity that can’t be executed without the capital. Also, investment in sales and marketing can make sense if the sales team is cost-effective – say they are delivering at least 3x return on their costs.

However, you must be careful that you’re are not just throwing money at sales and marketing challenges that could be resolved by working smarter. For example, some CEOs complain that it takes time to ramp up their sales force, requiring investment. While true, some of these challenges might be resolved by targeting smaller transactions, using telesales and/or leveraging partner relationships.

JR: What new projects are you working on?

GG: On the bootstrapping front, I recently set up a fund called Bootstrap Montana to support rural Montana businesses. We offer zero-interest microloans for projects that will provide a fast ROI. Our goal is to increase the level of employment in the state, bring in new sales revenue and increase the competitiveness of companies in Montana.

JR: Any last words of advice for founders starting a business?

GG: Yes, if you are starting a business, don’t spend your time calling VCs; spend your time calling customers, figure out how to solve their problem and get them to pay for it.

Javier Rojas is a Managing Director of Kennet Partners in Silicon Valley. Kennet provides growth equity capital to bootstrapped companies in the US and in Europe. Kennet focuses on capital efficient businesses with annual revenues of $5M to $50M. Kennet works with founders to build high value outcomes and preserve equity value through capital efficient growth strategies.

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