How to bootstrap (!) from zero to 365 million $ in 8 years: the Cleverbridge story
It’s not everyday that you receive an e-mail out of the blue to ask if you are interested in interviewing the European founder of a company that bootstrapped from zero to $ 365 million (you read that right, three hundred and sixty five million). Took me a few moments to get over the shock and answer back: “ARE YOU KIDDING?”.
The company is called Cleverbridge, and was founded, among others, by Christian Blume (42) (photo, front right) in 2005. Long before you heard of “disruptive innovation”, he and his co-founders decided it was a great idea to rattle a huge, Nasdaq listed gorilla’s cage. Here’s their story.
Christian Blume: “In 2004 I was working at Element 5, an electronic software distribution system for the international market space – very similar to what Cleverbridge does today, actually. I was doing business development for them since 2000. Then in April 04 we got acquired by the 800 pound gorilla in this space called Digital River. If you don’t know them, you can look them up on Nasdaq (laughs), their ticker is DRIV (ed: they have market cap of about $ 577 million today).”
“Element 5 was actually a very interesting company – it was started in 1969, very early in the shareware business, and it got its first VC funding in 1998. That VC money was a huge influx of money into the company, but of course it also meant that the path where it would lead was clear: towards an exit, one way or another, either a strategic acquisition or an IPO, or just a plain transaction.”
“So when my boss called me in 2004 with the news of the acquisition, I kind of fell over, thinking: this can’t be happening! But I quickly realised that this is just the way life goes: that’s just what happens when you get VC funding, right?”
“I was part of the integration team moving to Minnesota, and I was supposed to help get the platform integrated, but three months in I decided that this was no longer my show. It was a very unhealthy consolidation in my mind – Digital River had been on a buying spree and they had acquired just about any platform in the market. So we were operating in a market with a very dominant player and literally no alternative. So I decided: there may be an opportunity here. And I thought: let’s see if there’s something we can start.”
“I resigned from Element 5 and moved back to Germany, where I found a few other people who weren’t that happy with what happened. So I approached them and said, look, I’m thinking about this and this. Why not come and join me? And we got a very good bunch of people this way – seven founders, four of which had been executives. Next, we started counting the cash we had available. We wanted to figure out a way to bring something to the market that was definitely a different platform – not a me too – but something that would stay out for longer, a best of breed technology.”
“We were also adamant that we did not want VC funding. For us, Element 5 was sold at the wrong moment, and we thought it would not have happened but for the VC money. So with the money we had – in the high hundred thousands – we started the company. We also went to the Arbeitsammt to get unemployment benefits for founders. In those days, you could get 1500 euros per month for half a year while you started your own business. And we went to an organization in Germany called “Alt hilft Jung”, a society of executives who have reached pension age who still like to advise younger companies. That would actually be my first advice to young founders out there: nobody is born an entrepreneur, so get someone to help you out in the beginning.”
“Related, I was a bit disappointed in the organizations that are supposed to help entrepreneurs.”
Whiteboard: You mean the ones that tell you “hey this was really interesting, but I’m afraid I can’t actually do anything for you. But you know who you should really talk to? My colleague.”
Blume: “That’s exactly it! My god, the amount of meetings we were supposed to take for no result. They even had different opening hours, so we couldn’t even meet them all at once. A ridiculous amount of work went into it, until we decided, hey, this doesn’t make sense, let’s just try to pull something together ourselves and with a few people who can actually help us. That was mostly a few lawyers, executives, and the people from Alt hilft Jung.”
“One of the very early decisions we made was to create an Aktien Gesellschaft (AG) from day one (ed: a corporation (Inc.) rather than a partnership (LLC)), because we wanted to incentivise our people to hold shares in our company. From the start, we were thinking about building something really big.”
Whiteboard: And of course your accountant told you you’re crazy.
Blume: “Yes, we got a lot of that. From the bureaucracy to lawyers, and friends and family. We just said: we don’t care. And we hired a very young lawyer who, despite his age, was already a partner in a firm in Munich and asked him to be on our supervisory board. Obviously, we wanted a good lawyer: we were starting a direct competitor to our old firm – a Nasdaq listed company with a market cap of hundres of millions. So we thought: if we can convince the lawyer, he can stay with us all the way until we take our firm public.”
“So I called this person up, and he said: sounds really interesting.”
Whiteboard: What made you so sure that you would become so big?
Blume: “We just knew that we had the very best people with the know how to build up this market. We had a very complete team, with sales, marketing, business development, development and engineering, support. It was just… the best team. We knew that we would either make it – and go all in on the idea, or just not do it.
Whiteboard: What you’re saying is that it’s about not giving yourself an option? Let desperation do the work of motivating you as a founder?
Blume: Nono, we gave ourselves exactly one option (laughs): to succeed! And then, it’s about being able to sell others on the same story. You want to evangelize and get people on board who have the same passion as you. That’s been my job from the beginning: to talk to the right people and tell them, this is really a great opportunity, let’s do this.”
After getting a supervisory board in place with a lawyer, a friend of the founders as well as Blume’s father, Cleverbridge – very “unlean” startup like – locked itself in for about eleven months, says Blume. “We were just trying out the new tech, and not trying to acquire any customers. And on the 11th of November we came out of our basement and got our first sale. A client who said: “Okay, I’ll try you guys out and do a mailling with you”. Three weeks later, he switched his entire operations over to our platform.
So what does Cleverbridge do exactly? It’s an e-commerce platform for software. When you shop for an application that you want to download – like a virus scanner or a photo editing application – and you go to the site of the software maker, Cleverbridge basically does “everything that happens after the buy button”, says Blume.
The difference with existing solutions was that Cleverbridge built a client, instead of working through an online control panel. “We wanted to break free of the limitations that HTML brings. So we developed a client that resides on the infrastructure of the customers, like their PCs and servers.
Apart from that, Cleverbridge was one of the early players who offered systematic A/B testing and something like an API for integration with other solutions – all this in 2005, explains Blume. “We were already doing a lot of stuff that is adopted very widely today.”
“We offered multivariate testing. You want to run run trial groups for different checkout processes? We offered that. You want to send part of your traffic over Digital River and part over our solution and test which converts better? We can show you that.”
“All that may sound very technical, but when you’re working in a high volume software company, it’s all about increasing productivity. Our solution allowed them to win a lot of time. And it offered factual info on conversion rates. That’s important for any company selling via the web.”
After acquiring that first client, things went fast, says Blume. In 2005, the company did about 15 000 $ in revenue. By the end of 2006, the company was profitable. “January 2007 was the first month we were cash flow positive, and we have been ever since. As a bootstrapped company, we had no choice but to get there quickly.”
Check out the growth curve:
“The other thing that we did: we entered a very, very competitive market. So other companies locked customers in with contracts for 2 years. Some went as far as 5 years! That’s incredible, I think. Why would you ever sign that? We always said: we want to convince our clients through quality. We are not scared of entering a contract that lets customers end at any point. We don’t care. I don’t want a disgruntled person on my platform, just because they are tied to a contract. I always believed that this would keep us on our toes.”
“So why am I saying this? Because you might say: great story, Christian, but didn’t you lose most of your clients. Well, we have right now a retention rate of between 99.8 and 99.9 of the clients we have ever worked with over the years. We literally lost – a handful of clients, because of various reasons. Because they stopped doing business, for instance. We lost one client in the very early stages of the company, because he had only a 14.4 modem and the client application didn’t run smoothly. I was so frustrated at the time that I said: let’s buy this guy a DSL line to keep him!”
Whiteboard: According to Jason Lemkin on his excellent SaaStr blog, a lot of startups start to sputter somewhere in year seven. Looking at your graph: no sputter.
Blume: “Ah, but of course we had issues growing.”
“Getting the company started was a pretty big fight – you have to find the right people to build this system, and we were a very, very young company. We needed a lot of qualified systems engineers. At one point, our CTO went to his alma mater and said to his old professor: I’m building this thing, who do you know could help me. We ended up with two guys on PhD track – superstars in the Wirtschaftsinformatik – one of the highest profiles out there.”
“So we said: okay, you’ve been working on that PhD and making great progress. Why don’t you join us instead? We convinced them in the end, by the way. And then there as the client acquisition. We had to convince these companies that we would exist in four or five years time. But all we could say was, “yeah, our balance sheet isn’t so hot, but trust us”. Go tell that to a stock listed company. They want hard facts, not trust. So some of them said, we’ll work with you if you take a huge insurance – that we couldn’t pay at the time. So we did have growing pains.”
Whiteboard: But now you’re a very mature company.
Blume: “Yes. 240 people in Köln and Chicago. We started in two continents straight away.”
Whiteboard: What would you say was the biggest challenge during the growth?
Blume: “I would say: to keep the information flowing. You’re facing so many challenges. The thing is to never give up – review and reassess, and just keep growing. I believe in the light at the end of the tunnel.”
Whiteboard: What is the secret to bootstrapping?
Blume: “Without a doubt: cash management. We were never a company that was big on spending on everything. To give you an example. Company cars are still somewhat considered a status symbol in Germany. In our organization, nobody has a company car. I ride my bicycle to the office! If you get into bootstrapping, you should know what you’re getting yourself into.”
“I made a very conscious decision to reset my net worth, not knowing if I would ever recover. You have to be willing to do that, and accept the fact that you won’t be able to live the life you had before. It’s about accepting it, being aware, and saying: cash management is important”.
“That also means that we were forced to make money on clients. Some of them said, hey, we’re small, would you take us on as a client. Then we’d have to say: sorry but we’ll lose money on you. When we enter into a deal, we have to know that we’ll make money. We’ve lost business to companies with substantial amounts of VC funding – who enter into price wars. But we always decline to play. It can be frustrating to see what they can get into in terms of pricing, but on the other hand: our story is also proof that you can achieve this, even in a very competitive environment.”
Whiteboard: So what if one of your co-founders decides that he suddenly lost interest and that henceforth he will collect old cars, modern art or young women?
Blume: “These things could happen, but – knock on wood – we haven’t had that issue. We’re very aligned. Obviously we focused a lot on our business. We do have our big fights, but when they are resolved, we don’t look back.”
“I’m 42 years old now. All my partners are about the same age. I ask myself the question sometimes: what if we get an offer to be bought? Because obviously, everything in the market has its price. But I enjoy what I’m doing, and I still have a little bit of know how to give to the market over the next years. I’m not sure whether I’ll last until 65.”
Whiteboard: Obligatory question from a media and marketing person: why haven’t you been on the cover of Forbes?
Blume (laughs): “Oh, to get on the cover of Forbes would take a lot. But I totally agree: we Germans are very technology focused people. It’s no coincidence that you were contacted by our PR people, who are based in the US. They tell stories much better than we do. We knew right off the bat: we’re tech people, we need to leverage the best of breed knowledge in each locale.”
UPDATE: Maybe it won’t be that long before Blume makes it to the cover of Forbes: between the interview and the publication, Ernst & Young nominated him as a finalist for the “Ernst & Young Entrepreneur of the Year”
[Photo: Cleverbridge, showing Christian Blume – CEO & co-founder, Martin Trzaskalik – CTO & co-founder, Peter Blunck – VP Sales & Marketing and co-founder, Craig Vodnik – VP Operations & co-founder, Oliver Breme – CFO & General Counsel]
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