From Startup to Grown Up

It’s not easy for a new company to make it, let alone to grow into a stable, successful business. Some never get out of the startup phase. Others have enough financial backing and innovation but falter as they expand.

For those that go from startup to grown up, challenges await, especially when it comes to managing cash. Companies struggle to divvy up often limited resources between sales, marketing, advertising and other areas. Many grow too big too fast, then find themselves with too many employees or trying to serve large, undefined markets. Others have a hard time finding executives with the kind of experience they need to make it to the next level.

Here’s a look at two companies that have successfully grown up and out of the startup phase and what they did to manage their financial needs along the way: Jive Software, a social-network platform for businesses on the brink of an initial public stock offering, and Knowledge Infusion, a human-resources consulting firm that’s seen revenue quadruple in less than five years.

Jive Software – A Social Media Success Story
The tale of the business social network software company is a success story that’s almost too good to be true.

Once upon a time, two roommates at the University of Iowa write some cool social-media software before people even know what the term “social media” means. They pool $70 for business cards to launch the business, move to New York and then Portland, Oregon, and within six years, land $57 million in venture funding.

Jive’s story only reads like a fairy tale. Since Bill Lynch and Matt Tucker started the company in 2001, Jive has grown to close to 300 employees and revenue that’s reported to have topped $30 million in 2009. Company executives declined to disclose exact revenue.

But Jive had to navigate some rough waters to get there.

In the early days, Lynch and Tucker used a single apartment to write code and make sales calls. They took a bootstrapping approach to growing the business, only spending as much as they were selling and expanding as their customer base did, says Bryan LeBlanc, who became Jive’s CFO in 2008. “It was really about having the cash flow before they did any additional hiring,” LeBlanc says. “But there’s always the challenge of balancing between the need for revenue today and the need for building a scalable product.”

Some companies stumble during their early growth, but CEO Dave Hersh, who Jive's founders hired in 2001, made sure the business had the right people on board. “He found the first sales position, the first marketing position and many other key positions that are so important to a growing organization,” LeBlanc says.

When venture fund Sequoia Capital made its first investment of $15 million in 2007, Jive moved to a new level. With more money, the company tripled its staff to 150 people by fall 2008.

But that growth became somewhat unfocused and rushed, and partners at Sequoia wanted to rein things in. Hersh cut 25 workers, including several sales reps with less-than-stellar results. Jive also added board members with experience taking companies into the big leagues and refocused sales efforts on core customers. The changes paid off, and the following quarter was Jive’s most successful to date.

Now Jive is preparing for an IPO. LeBlanc says bringing on the right people with the right kinds of experience continues to be key. Toward that end, Hersh became Jive's chairman earlier this year, turning over the CEO spot to veteran technology CEO Tony Zingale.

Jive’s newest challenge is maintaining its startup feistiness while adding the processes larger companies require, LeBlanc says. That may mean no more free-flowing kegs in the break room. “We need to be thoughtful about the elements of our culture that really matter,” LeBlanc says. “Being open, honest, intellectually curious in our jobs. If we can do that, we can keep the good elements of early Jive as we continue to get bigger.”

Knowledge Infusion – ‘No One to Fall Back On But Yourself’
Jason Averbook and Heidi Spirgi spent years working at PeopleSoft and other HR technology companies before teaming up in 2005 to start an HR consulting firm, Knowledge Infusion.

All those years working at big companies didn’t prepare them for the surprises that came with running a business. “It’s like the first day you’re home alone without your parents,” says Averbook, the company’s CEO. “It’s exciting, but there’s no one to fall back on but yourself.”

Averbook and Spirgi started Knowledge Infusion without outside funding, not a far-out idea considering a consulting firm’s low overhead and capital needs. The two used personal savings and leveraged the networks they’d built over the years to get up and running and win their first customers.

But the company did need money to grow, and that was one of the first challenges. The two found it tough to drum up sales, and at the same time, oversee to the company’s day-to-day needs. Averbook came up with a solution he still uses, hiring employees to manage customers but using cheaper, contract labor in other areas. Today, even though Knowledge Infusion has grown to 35 employees, the firm still uses contractors on a regular basis.

Early on, Averbook tapped into free resources to reserve cash for other uses. One of those resources was Service Core of Retired Executives, the national nonprofit that pairs retired business owners with entrepreneurs. The free accounting and legal advice Averbook got from SCORE allowed him to splurge elsewhere, including on marketing. “We didn’t want to market ourselves as a small business,” he says, “so we initially spent much more money on marketing than we did anything else.”

That kind of thinking helped keep the company on track. In its first four years, Knowledge Infusion saw revenue jump to $6 million before flattening out in 2009 due to the recession. Business is picking up again, with Q2 sales up 180 percent over the same period in 2009, according to a company press release.

To stay profitable during that growth, Averbook constantly watches the market so he can match what the firm offers to what’s in demand and bring in the right people to deliver those services. The downside of that strategy has been laying off people who were important in the early days but whose jobs aren’t aligned with where business is headed, Averbook says.

Long-range planning has helped Knowledge Infusion grow at a good clip, but planning has to allow for flexibility, he says. “What makes you successful is not whether you have money, but whether or not you can plan the use of that money,” Averbook says. “You have to be willing to plan around your cash flow but still be willing to change since you don’t know what may come around the next corner.”