by Grant Buckler, Senior Writer, SoftwareCEO
Two brothers start a software firm, and sell it off to a huge corporation for millions of dollars. End of story, right?
Not for SLI Systems. That was only the beginning for this New Zealand-based search technology firm.
After they sold out, the dot-com crash swept away their jobs. So some of original team bought the technology back and started over again.
And in the past seven years, they've built the new company into a successful provider of website search technology.
The firm won't disclose exact revenues, but execs say they've been growing at 50 percent a year for the past three years. SLInow has just over 40 employees, with about 20 in technical positions and about 10 in sales.
CEO Shaun Ryan has led SLI from the ashes of the dot-com bust to success in the competitive field of site search. He credits perseverance, customer focus, and careful management. Read on for the 14 tips he shared with SoftwareCEO.
Rising up from down under tip #1: Never, ever give up
Brothers Shaun and Grant Ryan launched the internet search software firm GlobalBrain in Christchurch, New Zealand in 1998.
In 2000 they sold it to NBCi, the internet arm of TV network NBC, and the Ryans stayed on.
Then came the dot-com bust. NBCi shut down in 2001. Shaun and Grant, along with 900 other people from the company, lost their jobs.
Most people would figure that was the end, and go looking for other jobs.
But a handful of former employees thought the search technology still had potential. So they bought the technology back from NBC and founded SLI around it.
Part of the deal was a promise to support one big customer: General Electric. Because GE owned NBC, the support was a condition of selling the technology back to SLI; it didn't mean any revenue for the fledgling company.
But as Ryan says, GE made an awfully good reference for a startup company.
On the other hand, SLI launched during the dot-com bust about a month before 9-11. That was a very tough time to start anything, especially an internet company.
The key to survival, Ryan says, was persistence.
"You need to just keep at it," he says. "Things normally take a lot longer than what you think they're going to take, but it does pay to continue to be persistent."
After what he's been through, that's an understatement.
Rising up from down under tip #2: Fix something that isn't working
NBCi had been using the GlobalBrain technology to search the whole internet. But the Ryans always thought it could provide search for individual websites; they just never had a chance to explore that.
With SLI, Shaun Ryan decided to focus on website search. Not that it didn't already exist, but what existed at the time didn't work very well.
For example, the florist FTD is an SLI customer. On its website, a customer might search for something like "red roses." Before SLI, says Ryan, "you'd type in 'red roses' and you wouldn't see red roses, which was really frustrating."
Google's famous page-ranking algorithm uses the number of links to a page, among other things, to calculate its usefulness.
That doesn't work so well within a site, says Ryan. SLI's trick is to learn from every search. In fact, the company initials stand for Search, Learn, and Improve.
When a visitor searches a site, SLI's software generates a list of links, and records which links the visitor clicks. Visited links are ranked higher the next time someone searches the same term. That means the links that users judge most useful bubble to the top of the search results.
"The basic technology wasn't that difficult," says Ryan.
There were a few tricky issues, such as how to handle plurals and multiple-word search terms.
The essential breakthrough was the idea of recognizing which links people clicked on, and using that to improve the ranking.... in other words, improving an aspect of search that didn't work well.
Rising up from down under tip #3: Look for customer problems to solve
SLI chose the SaaS model, primarily because it would have taken more time to package the software the traditional way. Instead, the company wanted immediate revenue.
SaaS can be a lot of work, since the vendor must do the implementation and host the software for every customer, Ryan notes. But the good news is that you form close, ongoing relationships with customers.
SLI used those relationships to understand customer problems. And doing this helped the company spot opportunities.
For example, SLI began to notice that its customers — most of them e-commerce sites — were interested in marketing through search engines. They wanted their sites to show up high in search results when people searched for items they sold.
"We saw that as an opportunity to leverage the data we were collecting from the site search to help with SEO," Ryan says. "And that insight helped us develop our other core differentiating product, called Site Champion, which helps our customers rank in search engines."
Taking it one step farther, SLI then developed Ad Champion, which uses data from searches on a customer's site to identify terms that will get people to click on its paid search ads.
Rising up from down under tip #4: Lure them in with free, custom trials
Lots of SaaS vendors offer free trials. But SLI's search service isn't something a customer can just test-drive for a few days.
What does SLI do when it identifies a likely prospect?
"Typically we'll build a search for them at no cost that's better than what they have at the moment," Ryan says.
"So it's a fully functional demonstration of the product that they can actually use — trial on their site free for a month — and during that month, they prove out the value and at the end of that cycle, we sign them up.”
That's been SLI's approach from the start.
In fact, Ryan says, the company sometimes started implementing search for a target customer even before contacting them. On occasion, that turned out to be a waste of time. So SLI is now more careful about qualifying customers before making that investment.
But isn't it still risky to put so much work into a free demo with no assurance the customer will buy?
Maybe, Ryan says, but "we have confidence in our product." And about 75 percent of the prospects who try the free trial buy the service.
Ryan says SLI can get search working on a customer site in a few weeks, so if the trial convinces the customer, a sale can take as little as a couple of months. On the other hand, there have been customers SLI has talked to for years before they came around.
The cost of the service varies with the number of searches per month, the number of pages or products indexed, and any special customization required. So deal sizes run anywhere from $10,000 a year to about $100,000 a year.
Rising up from down under tip #5: Not sure where to focus? Focus where your software produces the best ROI
SLI set out to provide search for websites, any websites. But the company quickly narrowed its focus to e-commerce sites.
Any site with a few hundred pages or more needs search, Ryan says. But for a site that exists simply to provide information, the ROI in search isn't so clear.
On the other hand, on an e-commerce site the benefits of good search are very concrete. People find what they're looking for, they buy it, and the site makes money. If they don't find what they're looking for, they don't buy.
A couple of years after starting SLI, "we did an exercise looking at the market and trying to work out how we should focus our marketing efforts. And we decided e-commerce was the group we should be focusing on," Ryan says.
"There's a very clear return on investment."
Rising up from down under tip #6: In hard times, look for pockets of opportunity
A month after SLI started, hijacked airplanes crashed into the World Trade Center and the Pentagon.
"No one was buying after September 11," Ryan recalls. "Everyone was hunkering down."
It was a serious worry for SLI, which was still looking for its first paying customer.
Fortunately, the founders approached Veritas Software, a company that specialized in data protection, backup, and disaster recovery.
Veritas (now Symantec) was one of the few companies whose business didn't take a hit after September 11.
Quite the opposite, because the attacks made people think about protecting their data. And it became SLI's first paying customer.
Rising up from down under tip #7: Build a lean culture, without being cheap
SLI started in tough times, without much money. It was hard for the first while, Ryan says — but in hindsight, that wasn't a bad thing.
"If we'd had $10 million of venture money come into the company..." says Ryan. "I've seen that happen in other companies. Spending tends to go out of control a lot easier."
Because there wasn't a lot of cash at the beginning, SLI developed a lean corporate culture, where people think before they spend.
The founders learned to be generalists who could do many jobs. As SLI grew, they began hiring specialists in the areas where they really needed them. But they didn't hire beyond their means.
Ryan stresses that a lean culture doesn't mean cutting every corner you can. Take office space, for instance. SLI has pleasant, fairly spacious, centrally located offices.
"We just had a designer in our Christchurch office who said she'd love to work here, because we have a beautiful open-area office, with views of the mountains," Ryan says.
Employees work one or two to an office — real offices with doors and natural light — not crowded together in cube farms.
"I've always seen it as a false economy, not having a pleasant workplace," Ryan says.
Almost every software CEO we interview stresses this point: Cash is king. The key is to spend where it really counts. See the next tip as well.
Rising up from down under tip #8: Get a sales office where your customers are
There was one way SLI economized in the early days that didn't work out so well.
Most of the company's potential market was in the United States.
"We saw that we needed to employ [a sales person] in the U.S.," Ryan says. "We just didn't have the funds to do that. So we did it from here."
Selling to the U.S. from New Zealand wasn't very effective. And when SLI finally did open a U.S. sales office, it made a significant difference.
SLI now has offices in California and London, both primarily focusing on sales and business development, but with small engineering and marketing contingents as well.
About 75 percent of SLI's sales today are in the U.S., with another 15 to 20 percent in the U.K. New Zealand accounts for a very small portion of the company's total revenues, so it has built up its presence around the world to be closer to its customers.
Rising up from down under tip #9: For SaaS, get a host where your customers are
Following the same strategy, the company has numerous hosts around the world for speed and redundancy.
It's more important for us to keep our existing customer base happy than it is for us to get new customers.
"We have server clusters located in multiple cities and continents," notes VP of Marketing Geoff Brash. "We use a number of leading providers to get the best service and redundancy. Two of our providers are DataPipe and Rackspace."
Based in Jersey City, N.J., Datapipe has five data centers, including one in Hong Kong and another in Shanghai. Based in San Antonio, Texas, Rackspace has eight data centers, including four in the U.K.
With these hosting partners on its side, SLI can clearly take care of customers anywhere in North America, Europe, or Asia... and allay any concerns about its roots down under, far from its customers.
Rising up from down under tip #10: Put customers before prospects
Hard to set priorities and decide what to do?
At SLI, the rule is that customers come before prospects.
"It's more important for us to keep our existing customer base happy than it is for us to get new customers," Ryan says. "By keeping the existing customers happy, we continue to get revenue from them, but we also have them acting as our advocates."
SLI's success depends on keeping customers happy, since the SaaS model provides an ongoing stream of revenue, rather than one-time sales.
This emphasis on serving existing customers also means product development tends to focus on what customers are asking for, rather than going off in entirely new directions.
And besides, what customers are asking for is usually a good guide to what the market needs.
Rising up from down under tip #11: Have someone there for your customers 24/7
To be close to its customers, SLI has offices in New Zealand, the U.S., and the U.K. But the placement of those offices has another advantage.
They mean that SLI can provide support right around the clock.
"Customers can call us any time of the day or night, and talk to a person who will be able to fix their problems," Ryan says. "We have someone who's working for us who's awake, all the time."
SLI supplements that with 24/7 staffing at the data centers that host its software, and lots of redundancy to ensure its services are always up and running.
The end result is that if any customer has a problem, someone from SLI is available to help.
Rising up from down under tip #12: Use new media like podcasts and blogs to engage customers
In line with many software firms, SLI spends about 15 percent of its budget on marketing.
As part of its marketing, the firm recently began producing regular podcasts featuring its customers. Ryan talks with the customers about their businesses, the technologies they use, the challenges and headaches they face.
The existing podcasts are available here. Ryan does a new one roughly every month.
The podcasts are inexpensive, costing little more than time and a production cost of $150 an episode for a sound editor who cleans up the recording of the telephone interview to produce the final MP3.
It's not about promoting SLI products, Ryan says, though customers will often mention them.
"We're trying to create a resource there that other people in e-commerce will want to listen to and learn from, and through that by association they'll find out about SLI."
There's also an SLI blog here, written by Ryan and a few others. It mentions new product features, new customers, SLI appearances at trade shows, and other items. And the company produces a customer newsletter.
Rising up from down under tip #13: Be picky in hiring
What is Ryan's key advice to a young software entrepreneur?
He mentions persistence, focus on customers, and "be very picky in the people that you hire."
Prospective SLI employees are interviewed repeatedly, by many different people in the company. For some positions the company uses various types of testing; engineers must pass tests, sales people have to give presentations.
"It can take months and months to fill a position sometimes," Ryan says, but "we feel that we're better off waiting than making the wrong hire."
Of course skills are important, but like many of the successful software CEOs we talk to, Ryan believes the right fit with the corporate culture is at least as important as a person's knowledge.
"We're obviously looking for capable people, that goes without saying," he says. "But they've got to fit with the other people we have working here, and the culture is just as important as their capabilities."
Identifying that cultural fit is always the hard part, and it's difficult to say how one does it. Ryan sees it as largely a matter of experience.
“Over the years," he says, "people just got better at identifying those people who are going to fit in culturally."
Rising up from down under tip #14: Get new hires together with your team... even when it costs
Everyone talks about team-building, and sometimes that phrase doesn't really mean much.
But when a company makes sure new hires in California get together with their colleagues in New Zealand, that's taking team-building seriously.
Everyone SLI hires goes to the company's Christchurch head office for a couple of weeks. The flight alone, most often on Air New Zealand, costs $1,500 to $2,000.
Training is a major reason for the visit, but it's also about getting the new person acquainted with co-workers who will normally be thousands of miles away.
Almost everyone in the New Zealand office gets involved in training new employees, Ryan says. That means the new people meet everyone and actually spend some time with them — it's more than a quick handshake and a polite "welcome aboard."
"When we have new people coming down, it ends up being a very social time," says Ryan. "They get taken out to lunch every lunchtime by a different group of people, and we have events in the evenings and team-building things."
When possible, SLI will bring several new people to head office at once, making the visit a bit more of an occasion.
This trip helps new employees absorb the company culture and form personal relationships with people they'll be working with but won't see every day.
"I think it makes it a lot easier to work with them going forward after you form those personal relationships," Ryan says.