Neil Patel

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Jakob Freund’s business has grown from a small services business to a large venture-backed enterprise with customers like NASA. His company, Camunda has raised financing from top-tier investors like Highland Europe and Insight Partners.

In this episode you will learn:

  • The best books for startup founders
  • Managing cultural friction
  • Leadership as an art
  • His top advice when starting your own business

 

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    About Jakob Freund:

    Jakob is Co-Founder and CEO of Camunda – responsible for the company’s vision and strategy. He’s also the driving force behind Camunda’s global growth and takes responsibility for the company culture. As well as holding an MSc in Computer Science, he co-authored the book “Real-Life BPMN” and is a sought-after speaker at technology and industry events.

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    Connect with Jakob Freund:

    Read the Full Transcription of the Interview:

    Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. I’m super excited here. We have an amazing guest today. The story here is incredible because it’s not about going from consulting to building more like software and something that scales on the hypergrowth side of things. I think that in many cases, I see massive companies that are built as a result of really understanding your customer and then building something that scales around that. We’re going to be learning everything about how he did it and also about his story from the early days to where they are today, which is now a rocket ship. So without further ado, let’s welcome our guest today. Jakob Freund, welcome to the show.

    Jakob Freund: Thanks for having me. I’m happy to be here.

    Alejandro: Originally born in Berlin. Tell us about growing up there.

    Jakob Freund: I was born and raised in Berlin, and that happened in the late ‘70s, so I grew up on the Western part of Berlin before the Wall came down. I had a happy childhood over here. I started my studies in the early 2000s in Vidareutbildning. We started Camunda as a company in Berlin in 2008. We had no idea that it would turn into such a tech startup eventually. It’s really a coincidence that we started here.

    Alejandro: 100%, and we’ll talk about that in a little bit. In your case, you moved just a tiny bit there in Germany. You did business IT in university, but what got you into the whole computer world in the first place?

    Jakob Freund: That’s a great question, actually. That was back when I was nine years old, so in the mid-‘80s. My dad had a computer, and I wanted to play computer games. And he said, “Well, Jakob, I’m not going to give you any games on my PC XT, but I can tell you how to code, how to program.” I was like, “Is that interesting?” He taught me how to code in Pascal. He used to be a teacher in accounting, and he taught me to code. I programmed to calculate interest rates, which was at nine years old not exactly the most exciting thing to do, but then I read the manual of [3:29], I figured that you actually manipulate strings there, as well, and I learned the tutorial about how to program a hangman game, so I programmed that so I programmed my own game, basically, and played that for a while. Then I put all of that to sketch and printed labels and then tried to sell that as nine years old to my friends and family, and nobody would ever buy it, but it was my first experience with building and selling software.

    Alejandro: That’s amazing. And after university, you started being a project manager, a consultant, and all things led to you working at this company, where eventually you met your co-founder. So how was that relationship? Because that definitely transformed into you guys one day starting to brainstorm maybe like bringing a potential solution to the world, but how did you guys meet, and how was that connection where you felt there was something that you guys could do together?

    Jakob Freund: Yeah, it happened back in 2007. The story was that I finished my studies in 2005, started as an employee at a company in Berlin, as you said, as a product manager for integrating their platform of banks. Ever since I met the topic in my studies, I was super interested in business process management, this whole thing about how to design, manage automated, this was progress to make an organization more efficient and more effective. I just found it interesting, like coding your organization, and pretty cool, actually. I felt that customizing—I didn’t find a job in that space right away, so I started as their program manager. During the nights and weekends and after work, I put up my own website about the topic; BPM [5:16] was the name. The website attracted a certain audience, consultants, professionals in BPM. A forum was there for a community and also my to-be co-founder, and he was already a freelancer in the Java space for workflow automation. Someone had formed that site. He and I met online in that forum and then met at a conference. We had a few drinks; we had a good connection, and when I said, in 2007, “Bernd, I’d like to start my own business.” He said, “I have my own business. Why don’t we team up and focus on BPMN together and build a consulting business?” I was like, “Yeah, let’s do that. That’s great.”

    Alejandro: That’s amazing. Then tell us about really getting started with the consulting business—giving your notice. Then here you two guys are building a consulting practice, so what did that look like?

    Jakob Freund: As I said, in 2007, I was working. I actually quit my job as a project manager before that and then worked for a year at a BPMN software vendor as a solution architect, so again some full-time experience as an employee in that market. That was helpful. I gave my notice and left that company. It was exciting, but I was in my late 20s, so I had a girlfriend that turned out to be my wife later, but I didn’t have any kids yet, so I wasn’t too scared of the whole thing. Bernd Rücker and I sat down; we brainstormed, and we had the idea about “There’s a standard coming up called BPMN and about process modeling. It’s new. People don’t know it yet. Why don’t we give training to teach people how to design and broaden their processes in that standard? And why don’t we write a book about the whole thing?” We had connections to a publisher, and they said, “Yeah, that might be interesting.” So we wrote that book about BPMN, and it became a pretty big success in that specific domain. That helped us to build a reputation, a brand as experts for that BPMN process modeling thing, and also brought us leads and business as consultants and trainers in the first couple of years.

    Alejandro: Tell us about building up this consulting practice with your co-founder.

    Jakob Freund: It’s sort of a [7:28] problem to be honest because, in the beginning, you have to be slightly dishonest. You’ve written yourself as expects that have lots of experience. In our case, a lot of experience about how to introduce BPM and BPMN in your organization. The reality was that we had limited experience, so we had to be a bit exaggerating that we have seen so many things already, and that’s the marketing part of it at the beginning. Then you get your first couple of customers. How did we get them? First from networks, and my online website, so people that were selling our agency services to were visitors on the website, so we had those first connections. Then we had, let’s say, a half-dozen engagements with a bit of coaching, training, actually using the BPMN standard, mapping business processes. As soon as you have that, you have a flywheel going. You can draw from those half-dozen engagements. You have a couple of references that you can leverage, and from that, it’s really just building upon what you have done to kickstart the business.

    Alejandro: It’s a different type of approach because now you have the hypergrowth going, which is you have more money to get the wheel to turn faster. But when you have the consulting, it’s like you need to add more people in order to have the wheel turn faster. How did you guys manage with that? Also, for the people that are listening, who were those typical clients, and what was the typical job that you guys would consult on?

    Jakob Freund: it was actually bigger organizations right from the start. It wasn’t SMBs. In Germany, for example, there are many insurance companies that have around 1,000 to 10,000 employees. Only one-fifth of those are in the German-speaking area. All of those insurance companies would need to reinvent themselves and automate the customer experiences and think about the processes now more than ever. But even 13 years ago, that was a big topic already. In that sense, insurances and banks held those traditional bigger enterprises were our clients right from the start, which I believe was actually very helpful later, and we turned all of that into a software business. But that came later, as you already said. In the first five years, we had this—not really scalable business model of consulting, just building up the brand like sending a bill at the end of the month, being profitable, not needing outside funding of venture capital, etc., just doing our thing, basically, and enjoying the independence, not having a boss to report to, and all of that was the driving force in the early days. We always were on the lookout for: let’s find something that scales better than consulting. Typically, that is software. So right from day one, we thought about, “Couldn’t we provide some sort of software in our space?” We did have attempts that failed in the beginning. So we had that idea about, “Let’s put that process automation software that we bought somewhere else into the cloud so that people could automate their processes as a service,” which was a totally new thing back then. We tried that out, and it failed completely. So we had one or two bigger failures, but we kept going on the consulting side that fueled our business until the third attempt; we hit a nerve in 2013.

    Alejandro: Typically, when you were trying this, and this ended up leading to Camunda, which is your baby, but when you were trying all of these different ideas and initiatives, was that related to your consulting business in a way that you were trying to automate what you were already doing on the consulting, or were these like moonshot ideas that had nothing to do, and you were just trying to figure out if it would stick or not?

    Jakob Freund: No, it was totally related. Our consulting business was about business processes and how to model them, design them, and have a flowchart that we can discuss and even automate them by using existing automation technologies. There were products from IBM, from Oracle, etc., so we knew those products quite well. As consultants, we were able to implement your process using those products. The ideas we had were about alternatives to those products. So, in that sense, yes, it was very closely related, and the first to attend and just didn’t succeed or stick, and the third one then did. It was iterating on the idea of how to provide better process automation technology that was connected toward our consulting.

    Alejandro: You had an advantage because you had direct access and interaction with those potential customers, so what do you think that process was from putting something out there, seeing if it would stick or not? What would define that stickiness? Then, how did that end up being Camunda, where you said, “I think this one has legs.”

    Jakob Freund: Yeah. I think in our specific case, you always need to think about the type of business that we have, so bigger enterprise customers, not consumers, not small companies, not even startups necessarily—bigger enterprises with certain budgets but also certain expectations, and then the matter of business processes and process automation. What we did was, the one that also worked out for us, we took an open-source project of process automation that we knew very well. It wasn’t ours, but we knew it very well. We said, “Customer, we can provide annual support for that open-source automation technology.” We put a price tag on that like €12,000 or so per year—relatively low, very low from today’s standpoint. We said, “We can provide support.” That was the very first thing, a very seamless transition from consulting to an annual subscription that means just supporting it. But then, on top of that, we also provided this amazing addition tool that sits on top of the open-source thing that gives you certain real-time insights into what’s going on, like operations. That comes with an annual extra fee like $20K or whatever. We bundle all of that together into an initial offering of $20K to $40K per year list price. We did that in 2012, and we offered that to our consulting customers who had the exact same problem that we were solving with the product. We gave ourselves, I think 12 months, and said, “if we can sign between 10-20 enterprises on a price tier between $10K and $30K per year, we might have something going. Like a few deals—rather it be big deals, but a few deals. If there is sufficient head run that emerges across that small sample size, you can speculate. If ten insurance companies buy that, then 100 will buy that as well.

    Alejandro: What was the timeline for that because it’s not the same as to say, “Let’s get these guys in three or six months,” versus, “Let’s keep at it for 10-12 years until we’re able to secure some people”?

    Jakob Freund: Yeah. That’s an important thing. That’s a [14:43] have to run from the beginning. In the first two attempts, we had to understand at a certain point that this wasn’t flying. It’s hard because you want to be perseverant. You don’t want to give up too quickly. Then, again, when you’re beating a dead horse, you should get off that horse too. So how do you find that moment? By giving yourself a clear timebox. I believe 12 months is not always quite sufficient. Sometimes, even too long already, but for a product like ours, an enterprise software product that you need to get into an enterprise organization, that sometimes takes 12 months to even approve a purchase in the first place, but all of the bureaucracy and the red tape, and 12 months, I believe, is a decent recommendable timeline.

    Alejandro: Nice. In this case, Camunda ended up being sticky enough for you guys to really go at it, and here we are with Camunda today. For the people that are listening and watching, for them to get it, what ended up being the business model of Camunda? How do you guys make money?

    Jakob Freund: In 2012, after six months, we hit the milestone that we had set for ourselves for 12 months. Then, towards the end of 2012, we said, “This is it for us. We go all in.” And going all in means transitioning, which in our case meant positioning from consulting to a software business. That was with only 15 people; it was still a big challenge. We hired full-time engineers. We didn’t do so much consulting anymore, so you need to retrain your staff. Some even left because they said, “I want to be a consultant, but now the product is becoming the big thing here,” and that sort of stuff. We started with support for open source and then added more extra features, and we started our own open-source project in 2013. We really had it under control. That’s also today’s business model. Our product on a platform as it is for today is used in its open-source version for free by many different organizations. For example, NASA uses it to process data sent back from Perseverance, like the pictures and stuff from Mars, and then are processed on our product on the open-source version, which is very cool. So we have a big community of open-source users, but we also have those more conservative, bigger enterprises, [17:00] insurance banks that prefer paying for the commercial version that doesn’t just come with support anymore but extends additional features on top of the open-source support. So it’s an open-core business model. You’ll find that, as well, with Elastic, Confluent, and many others.

    Alejandro: In your case, how much capital have you guys raised to date?

    Jakob Freund: We have raised €25 million in Series A and €80 million in Series B. In dollars, close to $100 million.

    Alejandro: $100 million. That’s a lot of zeros for being in Europe, Jakob, so when you hear those kinds of amounts in the U.S., that’s normal. But in Europe, it’s a big deal to raise that kind of money because typically, once you’re past the Series A, then you need to figure it out, you need to think about bringing investors from the U.S., which is where they have the biggest pools of cash to deploy. How did you guys go about ramping up and also raising and transitioning from that early stage of a Series A round to a Series B? Because you guys have gotten a lot of great European funds to come in and invest.

    Jakob Freund: Yeah. Series A and B are also business-leading in our case because we raised a Series A in 2018, so after ten years. We went ten years without any answer coming at all profitable and stood growing more than €10 million ARR. At that stage, we raised the Series A. That is, of course, a bit uncommon. That’s also how it happened, by the way. The European ecosystem of tech staff is becoming very attractive also for U.S. investors. There are traditional players over here that have established themselves very well already, like Highland Europe and the people reporting for the Series A. But there are also even the West Coast VCs [19:00] and others that are now hunting in Europe. Nowadays, it’s much easier to raise venture capital than it was five years ago or whatever in Europe. In both cases, with that Series A and also the Series B that happened two and a half years later, like this year in early 2021. In both cases, it was reactive. So we were hunted by VCs. They reached out to us in a cold fashion. We never pitched to a VC. We just had conversations with those that were already interested. We had a shortlist of interested VCs and then picked the one that resonated best with us. So Highland Europe for the A, and Insight for the B.

    Alejandro: That’s interesting because in many instances, those people that are cold emailing from VCs, they’re trying to survey the market. They have probably formed an investment thesis around investing in a company like yours, and maybe they’re talking to all of your competitors too. How do you find that balance or the medium or that confidence to engage without wanting to educate them much so that they don’t go to a competitor when they’re in surveillance type of mode?

    Jakob Freund: Yeah, I know that. I get that concern, but I’m not sure if I have the best possible advice. You have to admit that as a company, we believe in transparency and being straightforward, honest, and candid above pretty much everything that we do. So we don’t overpromise, nor oversell, not to customers, not to potential employees, not even to VCs. Then we also believe that if you have—strategy is one thing, but execution is what really matters. You need to be able to execute on your strategy. I was never concerned about discussing our market, our business, and everything with those potential investors because I knew what would set us apart and determine our success is how well we would be able to execute or to capitalize on the opportunity. Here, I believe we are in a unique position because of our history. There’s not a single company I would define today as a straight competitor for us. I believe that is because of that unique situation that we are in, so maybe it’s also a bit special. To come back to your question, don’t be afraid of giving away too much information. Focus on your strength, on your customers, the market, and be fast in executing in all that matters.

    Alejandro: Your position was also very unique, as you were alluding to, because on the Series A, you guys were already making it happen. As the saying goes, you don’t know what you don’t know. When you’re making that kind of money already, it’s like you don’t really need it to survive. You’ve already been ten years pushing this thing, so what was that event that triggered you guys to say, “Maybe it makes sense to now get some outsider capital and ramp this up.”?

    Jakob Freund: It wasn’t a single event; it was a number of events. I was getting educated over time. For example, I spent three months in San Francisco back in 2014 with a mentorship from the German industry of economics or German companies that want to expand to the U.S. market, which we did already. So that’s maybe also worth mentioning. We’re growing in the U.S. the fastest, actually. There I got in touch with the whole ecosystem of [22:34], but I didn’t know about anything until then. Then I understood the mentality behind it, the idea of fast innovation, the agility, and also the excitement that comes once you figure out, “This actually has a big potential.” For most founders, I believe it’s not really about the money. Getting rich is a welcome side effect, but it’s about having an impact and really building something that has a big impact, and there’s this huge reward. Building and selling software these two things: building and selling it is very exciting. So doing that, not just to know with 20 people, but with potentially 2,000 people, you can just have a much bigger impact. It’s like, “Wow.” You can realize amazing ideas. This dawned on my co-founder, leadership team, and me after a while. So in 2018, the time was just right. We were over the [23:30] with Highland Europe. They approached us in 2017 already. They made a great impression. They were competent, and super nice, and not pushy, not aggressive, not arrogant, which is what you sometimes see with VCs, which really puts me off. They were already recruiting themselves as potential partners, and we were like, “We don’t need the money. We are profitable. However, if we want to do all of the things we want to do, we need to spend money faster than we would go to revenue in the next few years. So let’s secure funding while we don’t need it instead of to start looking for it when we do need it.”

    Alejandro: Nice. For the people that are listening, Jakob, to get an idea of the size of Camunda, is there anything that you can share in terms of the number of employees or anything else?

    Jakob Freund: Yeah. We’re not just publishing in revenue numbers, but the Series B speaks to the growth rate of what we’ve seen in the past three years as well.

    Alejandro: Yeah.

    Jakob Freund: Employees-wise, we are north of 300 right now, so that’s also a nice growth rate. We are the first organization nowadays, so we’re not headquartered anywhere, but we do have official forms of presence in Germany and all places in the U.S., London, Singapore, and Sydney, Australia.

    Alejandro: Nice. When you’re growing so fast, I’m sure that you’ve experienced cultural friction too. Tell us about this. What have you learned about cultural friction, and how do you deal with it?

    Jakob Freund: Yeah. Culture and leadership, I would say besides building and selling software, is the other most exciting part of building such a company. I’m really feeling how I’m growing myself, also, as a CEO. And growth is painful sometimes. Of course, you’re making experiences that are also nerve-wracking and frustrating. For example, when employees become dissatisfied or frustrated about developments—let’s say, for example, even cultural friction between geographies like it was fewer types: Americans and Germans, for example. We went into Germany, and we have many people from Germany. Our staff is growing very fast in the U.S., so we have many Americans on our staff now as well. Then you sometimes have those fewer typical or even real differences between the local cultures. So the way an American often appears in the meeting, the way a German often appears in a meeting, they can really put each other off. So you’ll need to navigate that. I think, for example, one mistake I would say that I have made was by trying to neglect that, even to deny that there are those differences. You know this whole thing about, “No, no, no. Let’s not talk about cultural differences when it comes to nationalities. We are one happy family,” so not paying sufficient attention to those existing cultural differences. I once read a book by Erin Meyer, which I can highly recommend. It’s really great, and it speaks about the different cultures in different countries and how they can often lead to misunderstanding, and how you can navigate that. We actually hired here for a workshop with an entire team, remotely by Zoom, and made all of us aware that those differences do exist, and that’s okay. That doesn’t mean that one approach is better than the other. It just means they’re different. We need to be aware of that and then find a consensus on how we want to communicate in certain ways. That’s, for example, one painful learning that we have made.

    Alejandro: Let me ask you this. As we’re thinking about growth and as we’re thinking about the future, imagine you go to sleep tonight, and you wake up in a world five years later where the vision of Camunda is fully realized. What does that world look like?

    Jakob Freund: There are so many things that could be better in this world, [laughter]. There’s so much crap that’s going on.

    Alejandro: I understand.

    Jakob Freund: But when it comes to Camunda as a business, and maybe even our contribution, if you will, we have this idea that you can automate any process anywhere using our technology. We’re serious about that. I mentioned the NASA example. That’s pretty exciting and unique. Because Camunda is the universal orchestration, as it’s called, you can put it on top of everything like machines, software, people, and it orchestrates the process from start to end. That is also happening even with actual robots, etc., through Camunda. Most people have never heard of us. We have this immense potential, and many people haven’t heard of Camunda yet. Hopefully, five years from now, Camunda will be a very omnipresent technology for making automation happen. Like, what can be automated should be automated, but people can actually focus on more interesting stuff. So that’s one element here. To come back to what I just said, we do have, for example, a Camunda problem for the common good, so we give away our software for free and for causes that we believe in, be it about climate change or be it about human rights, so we have organizations that we help and that normally wouldn’t get access to that sort of technology because it’s very expensive. Nowadays, our annual fees are sometimes in the millions. Often, NGOs wouldn’t be able to afford that. But we could have a big, big impact with automation on many things that should be improved in our world. Seeing that actually happening five years from now, again at scale and all around us, would also be amazing.

    Alejandro: Imagine that I put you into a time machine, and I bring you back in time to those years where Jakob was a consultant, a project manager, where you had met your co-founder, where you guys were thinking about what a world would look like where you would bring a company into it. Imagine that younger Jakob actually listens because we know that our younger selves probably wouldn’t listen that much. But let’s say that younger Jakob actually was willing to listen, and you were able to give that younger Jakob one piece of advice before launching a company. What would that be and why, given what you know now?

    Jakob Freund: Figure out sooner and faster how you can find and enable and lead people that can do all the things that you would often jump at doing yourself because you think you can do them so much faster and better—the arrogance. Leadership is an art, and once you’ve mastered that, you can make things happen that you could never make happen by yourself.

    Alejandro: I love it. Jakob, you were alluding to it earlier from this book from Erin Meyer around culture. I’m wondering if now if I asked you what is one book, besides that one that you wish you would have read sooner that maybe had a big impact on you, which book would you say?

    Jakob Freund: There are so many, but I think Ben Horowitz, The Hard Thing About Hard Things. I think that’s a classic. That really enlightened me.

    Alejandro: I love that one, especially when you’re dealing with how you embrace the struggle because everyone looks at the articles and the media outlets, and they see how beautiful everything is, but it’s not so beautiful getting there. There are really tough days.

    Jakob Freund: Absolutely.

    Alejandro: Jakob, thank you so, so much for being on the DealMakers show. It has been an honor to have you with all of us.

    Jakob Freund: Yeah, thanks for having me. It was really exciting and my pleasure. By the way, I remember the name of the book now. I think it’s The Culture Map.

    Alejandro: The Culture Map. There we go. Thank you, Jakob.

    Jakob Freund: Thank you.

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