October 31, 2006

From Big Apple to Big Time: How Jive hit 334% sales growth against the software giants

by Bruce Hadley, Founder, SoftwareCEO

Five years ago, in 2001, Jive Software was founded by Matt Tucker and Bill Lynch for $70. That's not a typo; it's seven-zero-period. And Jive hasn't received a dime in investment money since then.

Just two years ago, the company picked up and moved its entire operation 2,897 miles from New York City to Portland, Oregon. As expected, sales took a hit that year.

But this year, the developer of enterprise messaging and collaboration software made it onto the Inc 500 list at #443, with three-year revenue growth of 333.7 percent.

Profit margins, before all the bad stuff — interest, taxes, depreciation, and amortization — are running 25 to 30 percent.

Today, the company's software is being used to run online communities for companies like Apple, Amazon, and Electronic Arts.

Tucker and Lynch are still there, each running a product line and holding a majority of Jive's stock. But the guy running the day-to-day show today is CEO Dave Hersh.

We caught up with Hersh recently for the behind-the-scenes story. What's Jive's secret? How has the company racked up such phenomenal growth in a space that includes IBM and Microsoft as head-to-head competitors?

Interestingly, Hersh focused mostly on Jive Software's corporate culture. That doesn't mean Jive is all touchy-feely and focused on its corporate navel.

In fact, they've got some of the tastiest marketing we've ever seen, and their software's no slouch either: Jive's Wildfire product won the 2006 ServerWatch Innovation award for best real-time communication server, capturing more votes than Microsoft, IBM, and Antepo combined.

Still, Hersh really does believe in the power of community and culture — which is a good thing, considering that Jive is all about developing and marketing applications to further both.

Cool culture tip #1: Locate your company where you can grow.
So what about that move across the country?

"We just couldn't grow in New York," Hersh says. "It was too expensive.

"We moved from New York to Portland in 2004. That slowed our growth for about a year, but we were able to re-architect the company from the ground up, and that made a lot more sense."

Their recent growth bears him out. Jive Software now has 31 employees; Hersh expects to end the year at 36. 2005 revenues were $3.4 million, and 2006 will see "somewhere between $5 and $7 million," Hersh says.

Why such a broad range? "We have a lot of revenue-recognition stuff to figure out because we did a big OEM deal; it depends on when we recognize those dollars."

Cool culture tip #2: Use structured job interviews to measure a candidate's fit.
There's a lot smaller pool of people in Portland than in NYC. How has Jive handled hiring in their new home?

"We have a detailed, consistent, structured process for finding the right people," Hersh says.

"We made mistakes in the past hiring people who weren't right, culturally speaking. When some engineers see it as a nine-to-five job and others see it as their life's calling, it just doesn't work out.

"We adapted our interviewing process to ferret out the people who are a really good fit. Our process now includes more people in the interview, and more structure around the behaviors we're trying to elicit.

"A candidate may have to interview with six people in three or four visits, depending on the level. We've had some people come in seven different times.

"We take our cues from a book about employee behavior: "Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People."

"It's a book about finding and keeping 'A' players, and it gives a structured interview process. You learn how to create questions that can illustrate behaviors.

"For example, if we're looking for a support engineer, we'll ask, 'What does a support engineer look like? What kind of behaviors do they exhibit?'

"And some answers might be that they work well with people, they're good communicators, they're not prone to getting stressed out. OK, then, what are the questions we can use to ferret out those behaviors?

Cool culture tip #3: Use tests to evaluate skills.
The Jive Software interview process also includes practical tests for all positions.

"For a sales person, we may ask them to give a presentation," Hersh says. "They may do it over the phone, or maybe we'll ask them to pitch themselves to an audience of interviewers. It helps us understand their critical thinking, their presentation skills, and get a sense of their style."

For an engineer, Jive will ask the candidate to create some code. Here's their example instruction sheet, asking a support engineer candidate to demonstrate they can handle deployment, questions, and resolution-logging for Jive's Wildfire product.

"Then we have them sit in a room and go through the process," Hersh says. "They have to install the app, do a live support chat, and so on. They can see our style, and we can see theirs."

Cool culture tip #4: Hire passion first, experience second.
"Great people who don't have a specific skill set are much better for us than good people with the exact skill set," Hersh says.

"For example, we hired people to manage our support and professional services teams who hadn't done that before, but had the right kind of passion. Some were engineers who wanted to get into management or consulting.

"Yeah, you know there's a period where there's going to be a lot of training involved, but you also know they have the drive and the muscle to get through that.

"It gets back to culture: The more you have people who like to work with each other, who are compelling people: Those are the ones we like.

"Sure, you want people — especially in sales and marketing — who have some background in the area you're hiring them for.

"But if we're looking at Candidate A who has domain knowledge and no passion, and Candidate B who lacks the domain knowledge but has fire in the belly, we're going to go with Candidate B every time."

Cool culture tip #5: Don't be shy about showing off perks.
On its Jobs web page, Jive proudly lists employee perks along with open positions.

Hersh is neither apologetic nor defensive about the indoor bike racks, free soda and coffee, and Xbox 360 gaming console; he says it's simply good marketing.

"It's just a way to show some elements of the culture," Hersh says. "Yeah, there's stuff here that looks dot-commy, but we're profitable. All the engineers here are pretty bottom-line focused. It isn't dot-commy at all if we're driven by bottom-line results.

"If you go to Yahoo! and Google, you're going to see something very similar; they've learned what's interesting to people."

Hersh isn't suggesting that little Jive can emulate giants like Google in every respect. But his point is, if you want to hire the best, that's who you're up against.

"We have a really nice office space, because engineers are much more productive when they have their own, quiet space and a big workstation." (Want to see the office? Here are photos:
#1, #2, #3, and #4.)

Some other things Jive does to keep the culture — and the productivity — humming along:

• Company events. "We hired a mixologist to learn how to mix drinks," Hersh says.
• Athletic events. (with running teams, people who bike together, and so on.)
• Daily scrums for each workgroup (products, execs, sales, marketing, etc.). "It's more of a huddle," Hersh says. "It's a meeting kept to less than 15 minutes, where everyone stands up and discusses what they're working on, and where they're stuck."
• All company information (finances, schedules, etc.) is open and kept on the Wiki. The one exception is individual salaries and other compensation.
• Timed meetings. "We don't value long-winded meetings that don't accomplish anything," Hersh says, "so we actually have a timer."
• End-of-week happy hours. "On Thursday or Friday we get everyone into our break room with a keg and a tap," Hersh says. "It's just to get everyone together for a good time."
• Future plans? "I'd like us to have a meditation room, where people could take a catnap, a timeout, or a private phone call," Hersh says. "That would be really nice."

Cool culture tip #6: Embrace change, but build protective walls around the important stuff.
"We need to embrace the growth process and understand that some changes are inevitable," Hersh says in his blog.

"We want to operationalize the elements of culture that are most important so they don't get lost in the process."

Um, excuse us; "operationalize?"

"Like hiring," Hersh explains. "One of the elements of our culture is that we have a lot of really passionate people, who don't see what they do as a job.

"We want creative people firing on all cylinders, so let's create a structure for culture and innovation. Culture is so important to us; let's make sure we add those beams to the foundation."

In other words, Jive Software's passionate, Wild West, take-no-prisoners culture, with its long list of cool perks, has "institutionalized" the elements that make Jive a no-jive kind of place.

Cool culture tip #7: When you've got it, flaunt it: Use culture to push customer interaction.
Jive may have something of an advantage here, because the tools they build make it easy to connect different groups of people.

"Our software facilitates online communities, and we've gotten really good with the way we interact with our customers, including the open source community," Hersh says.

"We do customer advisory groups, discussion threads, blogs — there's lots of interaction. If you're always having a conversation with your customer, they'll get a very good feel for your culture."

Jive VP marketing Sam Lawrence says openness is a company constant, and is pervasive in all things. "We're very proactive in telling people what we're doing," he says.

"We see it as a very open culture, and it matches the way we develop software. It's easy to plug into, works well, and that cascades through our culture on a daily basis."

Cool culture tip #8: When you've got it, use it: Use culture to pull in customers (and new hires).
"Jive's culture comes through in every conversation we have with our customers and community," says Hersch.

"About once a quarter, we have customer conversations where we ask them where we're headed as a company. We announce it in our newsletter, and people are encouraged to sign up; attendance is unlimited and free."

Here are Jive newsletters from May and August, along with isolated images from newsletters that ask for product ideas, report on recent customer surveys, and admit one of Jive's rare mistakes.

Jive gives public product demos every Friday, with customers, employees, and the open source community encouraged to participate and give feedback.

"We've got our own community, so we're constantly looking for feedback. We ask things like: 'Here's a product name, what do you think?' 'Here's a mockup that isn't even coded yet, what do you think?' 'How can we make this better?'"

This begs the question: With such a wide-open attitude, isn't Jive worried about competitors poaching its best ideas?

"Yes, it's dangerous," Lawrence says, "but do you operate publicly and open yourself up as a company, or do you try to compete from behind a wall?

"We can either worry about our competition, or we can actively, aggressively move forward. We take that risk, but we feel it pays off, because we are in synch with what people are asking for."

Another fringe benefit of this community outreach is that it creates a constant source of job candidates, Hersh says.

"We've tried to use headhunters in the past, and it never, ever works. We've paid too much money and gotten the wrong recruits.

"On the other hand, we've gotten such great people through our community, it pays out really well for us. The larger our community gets, the more recruits we find."

Cool culture tip #9: If you need money, seek out smart money.
This is all about "keeping the magic," Hersh says.

"Money is fantastic and certainly a good measure of success," he says in his blog, "but if company decisions start becoming solely financial, we'll lose the magic. We've never raised a dime of outside financing, so we've had a lot of flexibility in living this theme."

Does that mean Jive will always shun outside investors? Not at all, Hersh says; it just means Jive's approach will be a little different.

"When a company is an obvious VC play, it becomes a very different endeavor than the one where you're trying to tap into the hearts of the people who work for you.

"I've seen that at several different companies I've worked for. If at the end of the day you see your job as building value for someone else, well, so be it.

"But we have no need to exit prematurely. We want to do something big, we want to be something far greater."

Here's an interesting metric: Hersh recently did a "stop, start, and continue" survey within Jive. He asked everyone to name one thing Jive should stop doing, one thing it should start doing, and one thing it should continue.

Of all respondents, 75 percent said the thing Jive should continue is the culture. (There was not a lot of consistency on the "start" and "stop" answers, he says.)

In other words, culture trumps cash. But that doesn't mean Hersh will snub all offers forever.

"We keep the conversation going with some of the top-tier VC firms," he says.

"If we did accept VC, it wouldn't necessarily be for cash reasons; it would be for corporate governance, introduction to partners, or because we see a market opportunity so massive that we need money to take advantage of it.

"In any case, if we were to do it, it would be with a VC we regard as a partner. It can't be dumb money; it has to be smart money."

Cool culture tip #10: Make your first market entry strong.
A primary measure of a young software company's success is that first market assault, Hersh says.

"You have to establish a beachhead," he says. "We worked on a product that no one had really done, and there weren't a lot of competitors in our realm — the external communities practice. Now we have 1,400 customers."

Jive software prices average $15,000 for a perpetual license, plus maintenance at 20 percent annually. The company has a hosted version, "and we're pushing it," Hersh says, "but it's more managed hosting and not ASP."

At the outset, Jive got its differentiation through the right combination of performance and price.

"Now, we need to use that beachhead to work our way into other parts of the organization. Ultimately, we want to change the way people collaborate online. We want to make it easier and more flexible.

"We're trying to bring an open architecture to that space, where people can write their own apps on top of it, and they can integrate easily with existing applications."

Cool culture tip #11: Use big partners and customers to establish credibility.
A large part of Jive's revenue acceleration has been fueled by the company it keeps.

"Having big partners and customers like SAP, Sun, IBM, and Apple gives us credibility," Hersh says. "And moving forward, we have partners who can distribute and get the app out to other people, giving us a lot more market share."

A good example: At the end of August, Jive signed an OEM deal with SAP. Hersh won't disclose the financial details of the deal, other than to say "it's big."

More importantly, Jive now gets to piggyback on SAP's worldwide distribution channel. "Our platform will come as a standard component of SAP NetWeaver," Hersh says.

By the way, take a look at the way Jive features customers on its home page: Logos are rotated, slowly and subtly, at the bottom of the page — a classy and direct way to present a customer list.

Cool culture tip #12: Each new market requires new marketing strategies.
Of course, Jive isn't expecting its partners and customers to do it all; marketing aims to keep its profile high.

"We're going to turn up the volume on trade shows," Hersh says. "We'll go to Dreamforce, Office 2.0, the Kana user conference, and we're putting in for speaking opportunities at several others.

"We're launching a massive new product at the end of this year. It's completely new, and we've been working on it for a long time.

"We want to position ourselves as thought leaders in the space — collaboration, co-authoring, instant messaging — all the new ways that people are getting work done.

"Some shows are good for speaking, some are good for exhibiting. The exhibit-type shows have been good for us for lead generation, but we want to turn up the volume on speaking opportunities."

For the new product and space dominance, it's also important that the PR effort be fully engaged, Hersh says.

"The press work has started to move, and now we want to be seen as the de-facto standard. A lot of the press right now is how we're effectively competing against the Microsoft and IBM offerings."

Cool culture tip #13: If your price is an advantage, play it up.
Jive publishes detailed pricing for all its products on its website. To many software companies, this is scary stuff.

"Pricing is part of our strategy," Lawrence says, "We're extremely affordable, so it's part of our competitive advantage."

For Jive's hosted version, Hersh says pricing is more variable: "We look at the costs and we look at licensing and we look at the competition. It's based on page views, storage costs, and more; we always do proposals on a per-customer basis."

And for one-off monster deals like the OEM pact with SAP, the rulebook goes out the window.

"With SAP, we looked at the opportunity cost," Hersh says. "How many deals will we lose as a result of this? Is there upsell potential? Longer term, maybe, but not the way this deal was written.

"The SAP deal is structured as a perpetual license with ongoing support, giving them the rights to distribute it. And, Jive gave guarantees that their updates and upgrades will always 'play nicely' with SAP's system," Hersh says.

"We'll definitely make money on it, I wouldn't do it otherwise. But SAP isn't really an upsell play. With other OEM deals we're working on — I can't say the names, because the contracts aren't signed — there will be lots more upsell potential."

Jive isn't just about paid licenses: The company's Spark and Wildfire products are freely available as open source.

"As an open-source company, we give a lot of free product away," Lawrence says. "So, how we market the path from free to commercializing that stream is really important to us.

"Within a particular free product, how do we move that to a purchased product? That is something that takes a lot of focus."

Cool culture tip #14: Use professional design to make your small company look big.
For a relatively small company, Jive has a distinctly big-company feel. The website, the logos, all the image elements are top-notch.

Hersh says hiring Sam Lawrence as VP marketing was key.

"Sam had done marketing for CNET, Dell, and Microsoft Office, from the agency side — he was behind the 'dinosaur' campaign.

"We had been working with an outside design firm, and Sam said, 'I think we need to rethink it. We want to look like a big company, and we're not right now.'"

Lawrence corroborates the story of his initiation: "My second day on the job, I said, 'Hey, wait.'

"They were about to launch the website, and it was more about the tools — it looked the way small companies would design the identity.

"I said, 'I know everyone has bought into this, but I really feel like we should go another direction.'

"Instead of using the agency, I used a resource I knew, a guy I had worked with in the past. He's a contractor, and I knew we could do this on the cheap. His cost was 40 percent of what we were paying the agency.

"He came up with the design, created the framework, and we did the coding, HTML work, and copywriting. What I was bringing to the equation here was the experience having done this, for a number of years, for lots of different-size companies.

"And one thing I know: For small companies trying to disrupt a market, it's really important to swing for the fences." For non-baseball fans, that means give it your best shot.

Cool culture tip #15: If you don't have the marketing knowledge inside, know what to look for outside.
OK, but what if you don't have a Sam Lawrence on your team?

"In lieu of having that resident knowledge, I think it's good to find partners who can provide it," Lawrence says.

"It depends on the scope and scale of what you're doing. In our case, we were going to shoulder a lot of the work internally.

"When you're looking at agencies, one thing that's really important is to pay attention to the work, not what's being said. And make sure the same people who did that work back then are still there today.

"There are certain people, in agencies and out, who add value. Making the effort to find out who those people are creates a really valuable network."

Cool culture tip #16: Great image + cool culture = cheap, effective swag. For both men and women.
"Here's something I would recommend to other smaller companies," Lawrence says.

"If you do invest in a tasty, visually-appealing identity, then invest in cheap swag. We did t-shirts, and you would not believe what people have done for these.

"It isn't just customers: it's people we admire, people who've blogged about us, they all want a t-shirt. It's bizarre how much currency that has for the money — especially t-shirts, especially when they look really good.

"And one thing that scores big points is that we have real women's t-shirts. Women love that we've thought of that. A lot of people don't, and just create men's shirts."

Cool culture tip #17: Build on blogs, but don't ignore professional PR.
Jive has a bunch of blogs, corporate and personal, accessible directly from the company's homepage.

"Being smart about how you engage with the public is really difficult, but powerful," Lawrence says.

"Blogs are personal. When you do have something to talk about, and you do a good job with your communications, other people's blogs — ones you'd love to be mentioned in — are more likely to mention you.

"It's important to identify whose blogs you want to be mentioned in, not just the technology blogs, but all the decision-maker business people who are passionate about the space you're in.

"I don't go to technologists' blogs and add comments, because it's beyond me — but our engineers do. A lot of companies don't get how really important and powerful this can be.

"When people do searches on companies or products, they're looking for other people's opinions. They don't want to read the paid opinions they'll find in your press releases.

"When your name shows up more and more, the benefit is immense. When you search on 'Jive Software' now compared to a year ago, there's an exponential increase.

"A lot of that is from blogs, but it's also from product reviews and articles. For that, we've hired freelance PR people who have the right contacts.

"We don't spend money on advertising — banners and print ads — because we believe the right way to influence people is to get your product out there and have people review it."

Cool culture tip #18: In marketing, the only constant is change; learn to love it.
Despite Lawrence's long experience and strong opinions, he didn't come in with a preset notion for Jive's image.

"I've always looked at it as if I'm not going to get it right the first time," he says. "Especially the web. It's dynamic, and you have to go in with that expectation — that things will change — and go with it."

Once again, Lawrence echoes the need for community involvement in all things, especially marketing. In fact, that's the one big thing he mentioned that remains to be done on the website: a feedback mechanism.

"I want an anonymous suggestion box, and we haven't gotten to that part of it," he says. "We love people telling us what they think. We're geared that way, so it makes me crazy that one has not been deployed."

Cool culture tip #19: Without a focus, your culture is irrelevant.
It's fine and dandy to have a happy software family with weekly foosball tournaments, but if the business focus isn't there, the business won't be, either.

"Focus. That's what it all comes down to," Hersh says. "And, that's one of the mistakes we made early on.

"If you start out selling threaded discussion software, you're going to attract a lot of different companies and they're each going to want their own features.

"At some point, you have to put a stake in the ground and say, 'We're going to do X really, really well.' I think you have to find the one thing you can do really well, then go 110 miles per hour after that.

"If I were starting a software company today, that's where I would spend all my time and attention."