What is the key to startup success? Luck is an important component to any kind of success says Steven Schuurman, co-founder and CEO of Elastic, in this episode of HitEnter. But playing the odds by launching a product or service at the right time makes someone a really successful entrepreneur.
Building a comprehensive and data driven understanding of what’s going on the market enables one to build a product or a service on the right time. Or increase the odds in Schuurmans parlance. “You try to triangulate certain things that are going on in the market such as finding some sort of pain point that is explicitly communicated by potentially customers or something that you see emerging, but it’s not being articulated yet”, Schuurman explains.
Solving a pain point
The notion of focusing on a customer pain point seems an absolute truism. It’s however time and again forgotten by many entrepreneurs (most important reason of startup failure) – as is the importance of thinking about a revenue model from the outset.
Your product or service should justify a spend. Even in the case of services like WhatsApp or open source where the focus is first on adoption, you should be thinking about the revenue model. “Aiming for adoption first is a very viable model as long as it evolves into a model that ultimately allows you to generate revenues,” says Schuurman. Adding: “I don’t think there is any commercial company that can declare itself successful if it spends way more than it earns.”
It’s valuable advice from someone who is without a doubt one of the most successful tech entrepreneurs in the Netherlands. Schuurman previously founded Orange11 and one of the most successful open source companies in history, SpringSource. This company was acquired by VMware in 2009 for 420 million dollars. Now the third company he co-founded, Elastic, covers almost the entire global market for real-time search of large volumes of data. Offering an ingenious product that scales or ‘stretches’ (hence the name Elastic) seamlessly as the volume of data grows.
Together with his co-founder Shay Banon, who developed the initial open source technology stack behind the company, Schuurman raised 104 million dollars in just 18 months after the company was founded. An extraordinary feat, even in Silicon Valley standards. NASA, Facebook, Netflix, ING Bank, BBC and Wikipedia are among the many clients of the company.
According to Schuurman it’s the same focus on solving a pain point that lies at the basis of the success of Elastic and it’s exponential growth. “I have been thinking about that, because if you get something right you want more of it. Our success can be explained by our product which solves a very specific problem and it does so in a very user friendly way.”
Schuurman is a proponent of the tech startup mantra that you have to hire the best team possible. He offers actionable advice on how even a first-time bootstrapped entrepreneur can recruit (expensive) world-class people. “You back the vision and energy with ideally hard data. That’s what we did when we raised our first investment. You really try to map your vision towards an actual trend that’s kind of already happening in the market in a way that it can be validated.”
It’s this focus on hiring the very best people and giving them the space to excel in a context of accountability that is at the core of the culture of the company. “Shay and I see ourselves as the guardians of the company’s culture. People have a lot of room to do the things they love doing.” But it’s not a kitty garden, we have some results to go after”, Schuurman says. There is however, no micromanagement because ‘bureaucracy and rules stifle innovation and make smart and ambitious people unhappy.’
Valuations and mythical horses
Last year Schuurman won the Loey Awards, the most prestigious Dutch online entrepreneurs award. In the same week the Dutch news outlet Sprout reported that Elastic is an unicorn. The second Dutch company valued more than a billion dollar after the payment solutions provider Adyen.
According to Schuurman this is not accurate. “Last time I checked we weren’t a mythical horse with one horn on it’s nose”, Schuurman says with a smile.” He goes on to say that valuations have been greatly inflated for quite some and this ultimately hurts your ability to become a viable company in the long term as you work towards an M&A exit or IPO. “If your enterprise value becomes too inflated, it can actually become too difficult to take the company public. There is too much of discrepancy what the private markets were able to pay for you and what public markets will bear as a valuation.”