Philippe Courtot is a well-known name in the security industry and for good reason. He has, over and over again, turned startups into multimillion-dollar companies and cashed out big.For the past 10 years, he’s been the CEO of Qualys, a cloud service that makes sure enterprise IT systems are secure. (He’s pictured fifth from the right.) Founded in 1999, it now has over 5,000 customers in 85 countries, including 50 of the Fortune 100. Apple, Facebook, eBay and Oracle are all on the list.
Qualys began when Courtot gave it a half million in seed money. He was talked into becoming CEO in 2001 when he arranged a $20 million second round (which he matched 50-50, he says). After raising more than $65 million in total, Courtot told us he is now considering taking Qualys public.
We caught up with Courtot before his keynote address at the RSA Security Conference, going on later this month in San Francisco. He gave us some awesome advice on the best way to launch a cloud startup and turn it into a long-term success.
Don't approach the VC too soon, says Courtot.
'You don't have to give all of your company to the VC. Not to say they don't have a role -- they do. But the key is your team,' he says.
By talent he means people who can design your cloud service and write code. Most importantly, they need 'good business sense' and the ability to work well with customers.
You shouldn't immediately hire for every possible need your eventual company will have.
'It doesn't have to be 100 people. Your team only needs to be big enough to do your first proof of concept' design, says Courtot.
The days when building a company meant bringing everyone into the same physical office are gone, especially for cloud companies, says Courtot.
'When building your team for a proof of concept, even if that other person is in France or Russia, who cares? If they've got the brains, the talent and the passion,' that's what matters, he says.
The next step is to find a customer you can convert into a partner.
'Start with a customer. Not to do something special just for them. This is not about getting your company funded,' he says. This customer will have the business problem your idea solves and will 'become a design partner,' he says.
'You can have a good idea and good technology but you need to be grounded with a customer,' he says.
If your idea really solves a business problem, you won't have trouble finding that design partner/customer.
Merely mentioning your idea should get them to want to come on board. After all, they are gaining access to your crack team to fix a problem that hurts them.
'It's very simple. If the customer knows the problem, he will understand immediately. If he doesn't, he's not the right customer, even if he pays you. You want the one that when you express your idea he says, 'wow,'' explains Courtot.
At this point, you can build your poof of concept. Remember, this is like a rough draft. It needs to be good but 'you don't need to have finished everything,' Courtot says.
Now you are ready to sign on investors. 'There's plenty of money around … you don't have to rush,' he says.
There may come a point where VCs or customers are urging you to leave the cloud and sell your software directly to customers. Beware!
Enterprise software companies make most of their money up front and ongoing maintenance is only about 20% of revenue, he warns. The only way to grow is to crank out new software and convince your customers to buy it at ever higher prices.
With the cloud, customers pay ongoing fees. You grow per-customer revenue by adding more services. This motivates them to stay with you. Courtot says that the average length of a Qualys customer's contract is now six years.
Starting a cloud company is one thing. But if you want it to stick around, be prepared to overhaul your technology.
Qualys built its first service with a programming language called PHP. Years later Courtot knew he needed to rewrite everything in another language, Java, because it would allow the company to add more services, faster. The change took years because Qualys had to overhaul while keeping the old stuff running. Plus, his company was loaded with PHP experts, not Java experts.
But if you don't change, you'll go the way of Friendster and MySpace, he says, drying up when a better-designed cloud service comes along.