The Journey

Startup 5.0 – I’m just going to chill out for a bit… (OK, for a month…)

June 4th, 2006   |   by Frank Addante

[Startup 5.0] StrongMail Systems, Inc. – Digital Messaging Infrastructure Company (incubated by Addante and Associates, LLC)

Age: 25 – 29 (present)
Time Period: 2002 – present
My Role: Founder
High Point: TBD

Here is a summary of my experiences to-date with StrongMail:

1. Relaxing
2. Incubation
3. Genesis
4. Go-to-Market
5. Spam Changes Everything
6. Venture Capital Funding
7. Relocation of Headquarters from LA to Silicon Valley / Culture Confusion
8. Stress
9. First-time Sequoia CEO Insecurity
10. Growth
11. Transition from CEO
12. Off to the Races

StrongMail is a digital messaging infrastructure software company. We provide turnkey digital messaging appliances for enterprises, service providers and software developers to send marketing, e-commerce, CRM and customer service email. Blue-chip customers such as Intuit, Williams-Sonoma, Fox Sports/MSN, Ticketmaster, Glaxo Smith Kline, Clear Channel, WebEx and Netflix turn to StrongMail infrastructure to bring enterprise-class reliability to their email systems. StrongMail’s software ensures reliable and timely delivery of their critical customer communications. Prior to raising $16M+ in funding from top-tier venture capital firms such as Sequoia Capital, Globespan Capital and Evercore Ventures, StrongMail was self-funded and cash-flow positive.

1. “Relaxing”

At the age of 25… After four back-to-back, high-action startup companies, it was time for me to take a rest. I decided that I was going to consult/advise a few companies and relax for a bit. I setup a nice little home office for myself and started dabbling with a few ideas. I started an incubator/holdings company called Addante and Associates to be the umbrella company for my ideas and consulting projects. I started dabbling with a few ideas around online advertising, search engines and other random projects. I developed a technology product called DHARMA (stood for Dynamic Hybrid of Advertising and Response Management Applications). It was intended to be a single solution for all-things advertising online (banner ads, email, content management, search advertising, etc.). This would later inspire the genesis of StrongMail. The LAST thing that I wanted to do was start another company. So much for resting!

2. “Genesis”

At the same time, I was consulting to the company who acquired Zondigo’s (Startup 4.0) technology as the foundation of their voice-recognition personal assistant product. During this time, L90 (Startup 3.0), was transitioning its technology group over to DoubleClick and many people from the L90 team were left behind, including Tim McQuillen, a great friend of mine and my co-founder at StrongMail. Tim was my right arm at L90. We initially hired him as our in-house recruiter. We needed to ramp up very quickly. Tim did such a great job of hiring the best, brightest people so quickly that our company infrastructure wasn’t keeping up. Our IT group was not able to support all of the new people we hired. As CTO, it was my job to solve this problem. So one day I had an idea… I walked up to Tim, put the MIS pager on his desk and said “congratulations! you are our new IT manager.” This interaction was about 20 seconds long. I had to run to catch a flight and was gone for the next couple of weeks. I came back and he had everything under control (even though he had no prior IT management experience). From that point forward, Tim was my “go-to-guy.” Whatever the biggest, most challenging, most demanding, most important job we had at L90, I always turned to Tim. He went from recruiter to IT manager to technical sales… Then, he did such a great job in sales that we had to build up more infrastructure for our ad-serving and email delivery platform to support the increased demand. So, I put him in charge of our data centers and technical operations. He became a technical operations expert and did an outstanding job managing our entire infrastructure of over 750 computer servers which processed billions of advertising and email transactions per month. Companies such as Visa, Microsoft, Disney and Proctor and Gamble relied on this infrastructure to facilitate millions of dollars in revenue on a daily basis – so, needless to say, it had to work 100% of the time. This was one of the largest, most demanding IT infrastructures ever built, and Tim conquered it; a guy, who less than 2 years prior, was hired to be our recruiter. This proved to me that smart, motivated people, with a passion for learning, can accomplish anything if given the right opportunity. Tim is one of the smartest, most honest, driven and passionate people that I have ever met. This, combined with his expertise in managing high performance email systems, was the reason that I started my next company with him.

3. “Incubation”

I brought Tim into Addante and Associates and we worked on various projects together. Addante and Associates had a number of projects going at the same time. Including everything from one-off development consulting projects, to building an auction site for Ticketmaster (called TicketExchange, recently launched), to developing a search engine, email hosting service and an online photo slideshow site. Some ideas lasted months, others lasted hours. We used some of the proceeds from these consulting projects to fund the development of StrongMail, along with personal funds. StrongMail was originally supposed to be the email infrastructure for the DHARMA project. We needed an email delivery infrastructure solution that was easy to operate and maintain, cost-efficient, could scale to handle millions of email messages, address the needs of a wide-variety of customer demands and could later be expanded to deal with other forms of digital messaging (e.g. SMS, MMS, Instant Messaging, etc.) Our “little project” turned into something that had enormous potential and wide-reaching demand. From there, we focused all of our attention on StrongMail…

4. “Go-to-Market”

Halfway through the development of StrongMail, we realized that every company that was using email had the same needs and went through the same rigorous process of developing custom infrastructure. About 80% of any email application is the same. Companies were spending most of their time developing the plumbing behind their email applications and a very small percentage of their time on the business logic. We thought that if we could invert that percentage that we could advance the way the world uses digital messaging to communicate. So, we decided to focus on developing a turnkey, digital messaging infrastructure solution that we could supply to enterprises, service providers and software developers. With StrongMail software, companies could focus on their business logic and create innovative email applications without having to worry about the underlying plumbing. Now, finally, we would see advancements in the way people use email!

We invested the first $1 million to develop version 1.0 of the product, file patents, hire a small sales team and launch a marketing program to take StrongMail to market. It took us about 18 months to develop and prepare the product. Within 3 months of launching the product, we were cash-flow positive.

5. “Spam Changes Everything”

Not so fast… While we were getting the product ready for market, email broke. All of this stuff started happening around us – spam, phishing, regulatory compliance requirements (e.g. SOX, HIPAA, CAN-SPAM)… Everything changed. Now, email systems around the world were breaking. Receivers were trying to block and tackle spam and senders were trying to keep up with all of the change. At first, I thought this was going to destroy our business – email was no longer trustworthy. Then, the opportunity became clear. With all of the changes came new laws, new protocols, new industry standards and a whole lot of complexity. These things would require every company in the world to adapt their existing email infrastructure to deal with the changes, and keep up with the rapidly evolving requirements. It turned out that this drove even more demand for StrongMail. This became the immediate compelling event.

6. “Venture-Capital Funding”

As I mentioned earlier, the last thing that I wanted to do was to start another company. But, this opportunity was hard to ignore, that entrepreneurial itch came back… Ah, why not scratch it?

Since everyone in the world will need to make a choice between continuing to update their existing, cobbled together email infrastructure or move to a commercial solution, we saw an opportunity for someone to own the market for an enterprise-grade digital messaging infrastructure solution. We wanted to get there first.

So, we said if we can find the right partner, with the right terms, then we would go raise venture capital. I went up to Sand Hill Road looking for a “pile of money.” To my surprise, within 3 weeks we had a number of competing term sheets from well respected VC firms. It appeared that we were really on to something…

We decided to go with Sequoia Capital and Evercore Ventures and closed a $6M Series A round. Sequoia has a tremendous reputation, but it was also important to us to have a local (Los Angeles) VC as well. We really liked the partner at Evercore and thought that he would make an excellent addition to the Board and the company.

7. “Relocation of Headquarters from LA to Silicon Valley / Culture Confusion”

Shortly after closing our Series A, we realized that it was difficult to find enterprise software people in Los Angeles. So, we decided to move the company to Silicon Valley (with a little encouragement from Sequoia, of course). We made the decision quickly and assumed that we could move along, business as usual, with little impact to the company. The reality was that I had no idea what kind of impact this would have on the company’s development.

We moved into an office in Redwood Shores, we lost some good people because of the move, we hired a bunch of new people and started growing the company. A startup company is extremely fragile, I never realized this until we relocated the company. With the move, we had lost part of our culture and identity. We also did not anticipate the full bearing of the distraction it would create (setting up a new office, learning new hiring standards/benefits, restart on our hiring progress and customer networking (typically it’s easier to find your first few customers close to you geographically so you can visit them face to face), looking for places to live, replacing the employees that we lost…) We underestimated the full weight of such a move and we never adjusted our plan to take all of this change into consideration. Additionally, we did not fully appreciate or understand the different nuances in the work culture between Los Angeles and Silicon Valley. With tech companies in Los Angeles, people show up to work in jeans, are laid back, work hard, have diverse work experience (beyond software) and simply focus on results. In Silicon Valley, people are much more competitive, have more focus/experience in software backgrounds and often focus more attention on the methods first, then the results. In the beginning, we hired a bunch of people based on the “LA profile” that we were used to, and ended up hiring the wrong people. It took us about 6-9 months to adjust to the cultural changes, put the right team in place and put the distractions behind us.

Looking back, if I were to do it all over again, I don’t think I could have avoided this adaptation – I just chalk it up as a great learning experience. The one thing that I would change, however, is the way that we arranged our office. We opted to go with an office layout that had executive offices on the outside and a mix of high (private) and low (open) cubes in a big, open space. Tim (my co-founder) and I were the first (and only) two people in the office. Since we were hiring and interviewing a lot, needing privacy, we setup shop in the exterior offices. We were moving so fast that we never left those offices and it set a pattern. As we hired VPs, they wanted offices and everyone else wanted to sit in the “high cubes.” This created a culture of “management” and “employees” which, in turn, created a “big company” type of communication environment.

I have spent a lot of time trying to foster a more efficient, open communication culture. Fortunately, we have a smart, adaptable team and communication continues to improve and it makes us stronger everyday…

8. “Stress”

Stress was always a foreign concept to me. One day, I remember asking my wife to explain to me what “anxiety” felt like. I would always move forward, adapt, let anything negative roll off my shoulders and kept focus on “the goal.” With this company, at the age of 26, I learned what stress was. Stress is what happens when expectations are not in alignment. I figured out why I learned stress at the age of 26. Up until that point, I don’t think anyone had set any expectations of me because I was always viewed as the “young kid, over-achiever who never knew what he -couldn’t- achieve,” so people simply let me go as far as I could and expectations could have been limiting. This time, there were a lot of expectations from my family, our team, investors and my co-founder, Tim. Expectations are fine, provided that you understand them and properly manage them. This was a lesson that I have since learned.

9. “First-time Sequoia CEO Insecurity”

Even though I had started many companies before, I had never been the CEO of a “Sequoia-backed company.” Since Sequoia has such cache, I thought that meant I needed to do things differently. So, I tried to do everything “by the book.” I listened to logic and reason instead of trusting my gut. I listened to everything that my Board told me to do. I hired people with lots of experience in enterprise software and I tried to do things like other Silicon Valley enterprise software companies. There was one problem with this – I never felt good about my decisions, because they were not my own, and it resulted in a loss of confidence. It made it even more difficult to trust my gut. This was the first time in my career that one of my companies was not doing well and I did not know how to handle it. I became more stressed, unhappy and frightened of failure – these were all feelings that I had never felt before with any of my companies. Before giving up, I owed it to myself to try one more thing – do it my way.

So, from that point forward, I promised myself that I would always trust my gut and my instincts –right or wrong- and move forward. I needed to feel confident in my decisions. That’s exactly what I did and almost overnight, the entire company was transformed – we started growing quickly, exceeding our targets and we have been seeing extremely positive results ever since. Interestingly enough, we ended up going back to exactly the same business plan that we started with – with some extra polish and improvements. And, most importantly, it all feels good.

10. “Growth”

StrongMail is my first enterprise software company. Traditionally, growing an enterprise software company is very different from a dot-com or an application service provider solution. Things seem to move a lot slower. With the web, you can change things everyday because it is always in your control. With enterprise software, your product sits at the customer’s site. So, you cannot change it all that often because it usually takes “work” on their side to update the software. So, most software companies only update their software quarterly. I would pull my hair out if we could only make updates 4 times per year, so I have been determined to change the dynamics of enterprise software. It involves changing the way people think, starting with our team. There are a few things that we have already done that accelerate the dynamics of enterprise software including turning our software into a turnkey appliance and creating “Live Updates” capabilities that let us change the behavior (frequently and often) of the software to adapt to industry change without any risk or work from the customer. The market has responded extremely well to this type of turnkey, auto-updating model and it will enable a new model for growth going forward. As a result, StrongMail is growing faster and stronger than ever.

11. “Transition from CEO”

Entrepreneurs need to ask themselves how they can best serve the company to move it forward. At different stages in the company, that might take on different roles and responsibilities. I believe a founder’s #1 job is to always think about how to move the company forward by running out a few steps ahead of everyone else and “pulling” them along. A CEO, on the other hand, needs to be constantly “pushing” the team to achieve the company’s immediate objectives while preparing it for what’s next. Additionally, entrepreneurs get tired. After putting in a constant 110%+ effort to build a company, a product and take it to market – things only continue to get more difficult. There are more people to manage, more products to support, more customers to satisfy and more investors to answer to. There comes a point where it is a good idea to bring in another “partner” to build the company with. Often times that is a CEO, in some cases it is a COO.

I transitioned from the CEO role and simply took on the title of “Founder.” I purposely did not assume a new title for two reasons: a) I wanted to set an example for everyone that titles are only what you make of them, and b) I could not fit myself into any one particular box – I describe my role best as “free safety.” One hour I might be spending time working with customers and partners, the next day raising capital, the day after that working on product vision and the next hour talking to the press.

Companies need to be careful when doing such a transition. Again, a startup and its culture are fragile, and entrepreneurs are fragile in the sense that they are self-motivated by their own emotions and inspirations. We probably did not do the best job that we could in making this transition. The CEO and I got along very well. We recruited him as our Executive Chairman and then slowly transitioned him into the CEO role. He went from Chairman to Interim-CEO to CEO. We were moving so fast that we did not do the best job of communicating the transition to the company, I did not do a good job of communicating to the rest of the Board what my expectations were, nor did I take the time to understand how their expectations would evolve. As such, it created a lot of confusion. Fortunately, again, the company is strong and resilient and we worked through it. In the future, I know not to take such a serious thing so lightly.

12. “Off to the Races”

It may have been a roller coaster ride getting here, but the company is well-positioned for great success. It is all about focus and execution from here. We are in a very large market with enormous opportunity. It is up to us to prove how far we can take it. We will need to adjust with the rapidly evolving market, we will need to re-invent ourselves from time to time to take us up another level, but that is all within our control. If we make the right decisions and execute them well, then we will succeed. If we make the wrong decisions, we will not move as quickly and risk failure. The important thing is to make decisions, feel confident about them, pursue them with “animal execution” and find out as quickly as possible if they are right or wrong. If they are wrong, we’ll have time to quickly adjust, if they are right then we take another step ahead of everyone else.

Today, the company is in high growth mode. As with any growing company, it will most certainly continue to be a roller coaster ride. It should be interesting…

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SNAPSHOT:

Venture Capital Funding: $16.5M+ total ($1M seed funding (self funded) + $15.5M (Sequoia Capital, Evercore Ventures and Globespan Capital))

Exit: TBD

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LESSON(S) LEARNED:

Trust your gut: As an entrepreneur, you have to trust your gut. There is no “how-to” book for your company. You’re writing that book as you go along.

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BIGGEST…

reason for success: Focus on the customer; thinking outside the box.

mistake: Pushing too hard too early.

challenge: Moving the company from Los Angeles to Silicon Valley; adjusting to the geographical cultural differences and rebuilding the company’s culture and identity.

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IF I WERE…

smarter: I would have trusted my gut more and avoided the period of insecurity.

dumber: We would not have stepped on the accelerator at the right time. We hit the market with the right product at the right time.

to do it all over again: I would have stuck to the original plan from the very beginning; but would have “walked” before we “ran.”

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Now that I have brought you up to speed on the past, the future focus of this blog will be to share various trials, tribulations, thoughts, ideas, lessons learned, advice and personal strategies…

Next on deck… “My golden rule: Keep it Simple”