In November, business contact management software maker CircleBack, based in Vienna, Va., surprised everyone by sporadically cutting 50 percent of its employees. The move came just 5 months after raising $12 million in funding from a cohort of prominent venture capitalists that included cash from local boys Grotech Ventures and TDF Ventures. In an interview with DC Inno, CEO Manoj Ramnani continuously declined to provide details on how such a collapse could occur, returning to the tagline: "we were trying to do too much. We're going to return to our roots." He repeatedly added, "it happened with Cvent too.. we'll follow that model."
As I was reminded during my investigation into CircleBack, startups sometimes fail and that's normal. But spotting larger trends for why it happens and how it can be reversed is undoubtedly important, regardless of the industry.
That's what spurred my visit to Cvent HQ earlier this week to speak with co-founders Reggie Aggarwal (CEO) and David Quattrone (CTO).
When Cvent, the now 16-year-old McLean, Va.-based event software behemoth, completed its IPO in 2013, the company blasted onto the public market scene with a $1.5 billion valuation as it raised $118 million in funding. The IPO was an accomplishment that few believed would be possible back in the early 2000s, when Cvent was cutting 80 percent of its workforce and pivoting amid investor pressure in the rubble of the dotcom collapse.
Aggarwal was one of the few people who believed that Cvent's comeback was possible.
He didn't lose faith, even after moving back in with his parents and finding the company he founded, adored and helped nurture, on its death bed—burning a million dollars a month. At the time, the young entrepreneur had maxed all of his credit cards, made numerous promises to mentors who had since become angel investors and was committed to the idea of bringing event planning into the 21st century.
The Cvent of the 2000s wasn't working, and the tech company massacre catalyzed by the dotcom bust had forced an internal shift for the company; necessary for it to survive.
Aggarwal, perhaps more so than any other area tech executive, know hows to turn around a struggling startup and transform it into a success story. So, I spoke to the man behind one of the largest event planning software companies in the world to get his advice for D.C. tech startups that have fallen on hard times.
Here's what he said...
Time is limited, and so is your window for success
"Make the most of your opportunities. Of the time you have. And give it your all," Aggarwal says.
There has long been a predominant and optimistic belief floating around that anyone can become an entrepreneur at any stage in their life. And while that statement is accurate, the truth of the matter is that it's also somewhat disingenuous, according to Aggarwal.
It's best to start your businesses when you're younger—building a financially strong company really takes about 10 to 15 years—when you've got more options, less responsibilities and the flexibility to return to "corporate America," Aggarwal explained. Sometimes failure can be blessing if it happens early enough, because it teaches important lessons and the overall experience of founding a business can build valuable skills pertinent to other ventures.
Aggarwal founded Cvent alongside a small group of partners in 1999. Thanks to a Georgetown law degree, employment at a law firm always served as an alternative. The security of a college education was critical, even more so than the actual legal insight it afforded.
Understand the balance: current demand vs. future innovation
One of the key reasons that Cvent struggled with revenue early on was that it sold a product that was ultimately more expensive to build than it ended up retailing for. The issue seems like a simple situation that can be easily fixed, but not everyone sees it that way.
Aggarwal said that through the struggles, he held onto the belief that most prospective clients would eventually adopt digital invitation marketing. "The need for disruption was just so obvious," he said. The issue was that his business couldn't wait for the market to catch up given the sheer amount of resources Cvent had allocated to R&D—as part of the race to build the next generation platform" against other competitors.
"Back then, you know, investors would just hand you $25 million check and the question was how fast you could spend it," said Aggarwal.
On a basic product level, the company's software may have been ahead of the times. The corporate culture that then shadowed clients brought an air of skepticism to dealing with disruptive companies, especially in the years following the bust. And the problem for Cvent was two-fold, Aggarwal told DC Inno, because their software intertwined two icebreaking concepts: cloud data storage and the exportation of enterprise software outside of a company's on-premise servers."IT departments had a fit with us," Aggarwal recounted.
The solution?
Aggarwal said that Cvent focused on getting back to the basics of business, "the blocking and tackling" involved in efficient daily operations.
Those efficient daily operations included a number of things, including relying less upon venture capitalists and to build a flagship product that offered healthy profit margins. Cvent's event management software was then designed—in broad strokes—to challenge norms, but not to break them: this meant offering a very customizable suite of editing options for clients organizing everything from small to large events rather than a one size fits all platform. Costs were also cut to a barebone: employees flew coach, most of the founding members moved back home and the amount of money invested in R&D was lowered greatly.
Don't become an "artificial company," it builds bad business practices
A growing group of quickly scaling startups can now be defined as "artificial companies," Aggarwal told DC Inno, because they are scaling at a pace that is "unnatural." This is due to the abundance of private equity capital that is available for startups, today.
The rapid expansion and funding of companies like CircleBack, who've only been around for a couple years and boast smaller customer bases, are playing by rules that are intended for unicorns, according to Aggarwal.
As the private equity market continue to correct itself, Aggarwal believes that many investors will look to liquify their startup investments in the coming years. For startups that have raised round after round from VCs, scaled in excess and developed experimental products that are absent of consumer demand, the fall will be swift and harsh.
His advice is simple: understand that a good investor can do a lot of good for your company, but they should not be leaned on as a pillar towards sustainable growth. That's something that only the C-suite can accomplish. Attracting an investment is not an accomplishment on its own, it's just the beginning. Be sure to institute a solid strategy that sees significant margins and appeases a client's changing needs.
"Back then, if we had raised just a little more money, or grown any larger, than I don't think the recovery would have been possible," Aggarwal remembered of his efforts to resurrect Cvent.
The takeaway is this: if your startup is burning cash, not making a profit or attracting clients, then raising another round of capital is probably not the solution. In actuality, raising even more money in the face of crushing debt is something that can hurt an entrepreneur's chances of trying again and founding a new company down the road.
