Todd Olson is the founder and CEO of Pendo, which is a product cloud creator for digital products and data-driven product teams with headquarters in Raleigh, North Carolina. The company has raised $108 million from top tier investors such as Battery Ventures, Spark Capital, Meritech Capital Partners, or Sapphire Ventures. Prior to Pendo, Todd started 6th Sense (acquired by Rally) and Cerebellum which raised $17 million in institutional capital only to shut down during the dotcom era.
In this episode you will learn:
- Dealing with startup failure
- Going back to corporate after being an entrepreneur
- Dividing responsibilities between cofounders
- The moment you know it‘s time to raise capital
- How to connect with top tier investors outside major hubs
- Challenges being outside of major hubs
- Scaling a team quickly and embracing culture on the way
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
ACCESS THE PITCH DECK TEMPLATE
About Todd Olson:
Todd Olson is co-founder and CEO of Pendo, a product experience platform that helps product teams create software customers love.
A three-time entrepreneur, Todd has experienced the highs and lows of running fast-growth technology companies.
A proficient coder by age 14, he spent his teen years working as a database designer and software architect for MBNA Bank in Delaware. By graduation from Carnegie Mellon University, he’d invented a data integration product, co-founded Cerebellum Software, and raised seed capital.
Cerebellum went on to raise $17 million in institutional capital and hire 65 people, only to shut down when funding dried up during the dotcom era. A role as vice president of product development at TogetherSoft brought Todd to Raleigh, where he eventually started 6th Sense Analytics, which he sold to Rally Software.
The inspiration for Pendo came as Todd led the product team at Rally. With no product usage data available, he struggled to decide which of the dozens of feature requests that hit his desk each week were worth the investment of time and capital. After Rally’s IPO, he teamed up with fellow product leaders and technologists from Red Hat, Cisco and Google to launch Pendo in October 2013. The company has since raised $56 million in venture capital, landed more than 500 customers and now employs 170 people across offices in Raleigh, San Francisco, New York and Yakum, Israel. It was named a Top 50 U.S. Startup by LinkedIn in 2017.
Todd prides himself on his product background, and the knowledge, experience and empathy it lends to customers of Pendo. He frequently speaks at industry events on topics like Agile software development, product management, startup fundraising and entrepreneurship. Outside of work, Todd is typically enjoying life in Raleigh with his wife and four children, aged 1 to 21. He also loves to bake, especially cakes.
Connect with Todd Olson:
* * *
FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello, everyone, and welcome to the Dealmakers Show. I’m actually very excited about the guest that we have today because he has a lot of experience when building and scaling companies from the ground up. Some successes; some failures, but in any case, Todd Olson, welcome to the show today.
Interviewee: Thanks, Alejandro. It’s great to be here.
Alejandro: So, before you took the leap of faith, Todd, as an entrepreneur, you were working at Bank of America for seven years. What made you get out of your comfort zone to start your first company?
Todd Olson: It just sounded more interesting. So, full transparency, as far as the Bank of America, I started working when I was 14 years old. Of course, I was in high school then. Then I eventually went to college. I continued working through University. When I was graduating, it was right around the first dot-com era. This was around the days when Netscape was going public. I had only ever considered a life working at the bank. They were offering management tracks. It was certainly very attractive when I was young. Frankly, it was all I ever knew. I met some friends, started doing some consulting, and looking at starting a company. It just seemed like the right fit. So, I made the leap. Actually, my senior year of college I dropped down to a part-time student, which my parents weren’t incredibly excited about. I started working, and I think the rest is history. I got addicted to the whole startup lifestyle and the entrepreneurial lifestyle. So, I can’t imagine doing anything else right now, which is kind of crazy if you think about it.
Alejandro: I hear you. I know the feeling. This first company, that was Cerebellum?
Todd Olson: Correct. Yeah.
Alejandro: What was the business model behind Cerebellum?
Todd Olson: When we started the company, it was, again, the early days of the internet, so we were doing more consulting projects trying to bring data and databases to the web. This was—you know, there were hardly any app servers. A lot of it was kind of rolling your own infostructure. So, it was pretty interesting technology. Through the course of those consulting experiences, we discovered how difficult it was getting data on the internet. So, we then conceived of a product idea. Then from there, we started raising some capital to split off a small team from our core consulting business and start building a product business adjacent to it.
Alejandro: Got it. So, how much capital did you raise?
Todd Olson: It was a long time ago, Alejandro. It was in like the 20 to 30-million-dollar range. Somewhere in that range. So, not a ton of money.
Alejandro: Got it. We’re talking about the ’90s, so typically at that point, who would finance this type of company?
Todd Olson: So, the first round was some family and friends. Note to anyone else: do not take money from your family. It is not a good idea. I mean, no one resents me. Everyone still talks to me, but trust me, the amount of stress it takes or adds taking money from your family is just a level of stress beyond even I like to endure. So, I did a little bit of that. Eventually, we did raise professional venture capital. I talked to a ton of people. The company was headquartered in Pittsburgh, so again, it’s not the Bay area. Much more challenging to raise capital there.
Alejandro: What is happening with the business, Todd?
Todd Olson: We almost sold the company. When I say almost, we had a letter of intent. We had a bridge. We had what I thought was a done deal. Then the board lacked confidence in our ability to successfully negotiate this, so they got a banker involved to try to get a better transaction, and it ultimately killed the deal. So, once it killed the deal, we had only a small number of months of cash left. So, the company had some difficult choices. At that time, the company decided to pivot and go back to being a consulting company to get to more of a cash flow breakeven mode. So, we basically terminated our product development efforts. Ultimately, not the way you want a company to end, but a lot of lessons in that.
Alejandro: Yeah, I hear you. Look, at the end of the day, this is like the journey of being a founder is either you succeed or you learn. I mean, that’s really the way it works. But I guess for the people that are listening, it taught because everyone always talks about their successes. I know that the painful experiences are where we learn the most. So, I guess for you, for example, from this experience, how do you really recover when life is literally slapping you across the face with something like that?
Todd Olson: Vodka helps, I learned. But in all seriousness, I think the thing that goes through your head, the thing that you need to remember is if we were really close to an exit—there was an exit, and there was a time when it probably would have been a stock transaction, and the entire stock market crashed shortly thereafter. So, who knows but what the ultimate financial outcome would have been for me or any of the other individuals or investors involved? It’s hard to say. But it certainly probably would have been better than what did happen. So, I think to myself, wow. If we got this close, if we got this level—I mean we built a company up to 70 people, and I was 22, 23. I figured if I could do that then, I could probably do it again. I had never thought it was possible to do before. So, once you see what’s possible, I think it gives you a level of optimism like, “Yeah. I can do that again. I did it once. I can do it again. What’s going to stop me.” Right? So, I think that’s the one thing you take away from this is that anything is possible. It gives you a lot of hope as you look forward to the future.
Alejandro: Got it. That’s definitely what you did because you did a few years after this as VP of Products and also Chief Scientist before you really took another step. This next time around it was with 6th Sense Software. Is that right?
Todd Olson: Correct. Yeah. In between, I got recruited by a company. That’s the company that moved me to Raleigh, North Carolina. I’ll never forget the then VP of Sales was selling me on joining. He said, “This is a legit software company. If you want to go work and see how a software company is run, come to this one.” And you know what? It was an awesome experience. Also, I inherited a team of over 200ish people in St. Petersburg, Russia. I had never spent any real time outside the United States. So, to manage a Russian team and get all that experience, it was an incredible experience for me. And even though I wasn’t the founder, I was a member on the executive team. I got so much out of that. I think I became a much better executive, and frankly, a better entrepreneur because I think the nice thing, you look at my experience, I kind of ping-ponged in-between starting something and then going to work for other entrepreneurs. I think you learn a lot when you’re working for other entrepreneurs. You’re really impressed by what they do. You learn things that you think you may do a little bit better frankly, but independent of that, I know I’ve gotten so much from the entrepreneurs that I’ve worked for that I think it’s made me a lot better.
Alejandro: That’s amazing that you say that, by the way, Todd, because sometimes, in may instances or most instances where you have been leading an operation, and then all of the sudden, you have to work for someone else, and you see this mainly, for example, when these companies end up being successful, and they are acquired, and you do the vesting period. Founders typically have a really, really difficult time working for other people. So, I’m glad that you were able to really get some learnings out of this.
Todd Olson: Oh, yeah, and I think we all have to park our egos at the doors to come degree and realize, too, if you’re on a rocket ship, if you’re part of a company that’s got a disruptive product, or you’re on an amazing growth trajectory, buckle up and enjoy the ride. I think it doesn’t matter what seat you have on the rocket ship, just enjoy the rocket ship. I think in both the cases that I joined, they were both really great businesses, and they were a rocket ship. They each had their own unique aspects to them, unique things I pulled away and learned. I said together solved that company I joined here. I got this international experience that I would have frankly probably never have gotten otherwise in my career. Where else am I going set up shop in Russia? We opened an office in Japan while I was there, and I was part of that new business opportunity. I grew in so many different ways that it was totally worth it. I had no issue working for someone else. They always say when you’re hiring, hire someone you ultimately could work for. But, it’s just ingenious if you don’t actually do it.
Alejandro: That makes sense.
Todd Olson: I can confidently say I have done that. Yeah, look. Again, it’s a great business and great people. I have no issues with it at all.
Alejandro: Let’s talk about your second step as a founder. What was this idea? How did you come up with it?
Todd Olson: So, as I said, I was managing people overseas, and I saw that that whole managing development teams, specifically distributed in remote development teams was really, really difficult getting a sense for where things are going. What was the status of it? So, I conceived this idea called 6th Sense Analytics, but really knowing what was going on, knowing the pulse of your development organization. So, I’d say it’s the early days of ALM or Application Lifecycle Management or Developer Analytics to get a sense for what was going on: productivity, efficiency, where areas of challenge. Also, at the time, I decided that I wanted to do this on a fully cloud-based platform. At that time, there weren’t really any cloud-based business intelligence platforms. That was a big part of our intellectual property is actually building one in your early, fully multi-tenant cloud-based developer analytic solutions. So, that was the idea. We actually integrated into things like development environments. We captured all sorts of data. Actually, it was a good precursor to Pendo because Pendo architecturally does very similar things, but I definitely cut my teeth on analytics and learned a lot about it.
Alejandro: Got it, and this company actually had a better outcome than the first one. So, the company was acquired. Right? So, no [crosstalk 0:11:59].
Todd Olson: It was. But, you know, it was also a tough scenario. You can look back; we sold the company at the end of 2008. We had had some changes in leadership. I was the CTO. One of my partners was CEO. We kind of split up, so to speak, in early 2008, which left the company in a tough situation. I had to take over as the CEO, which I hadn’t done before. We had only probably six to nine months of capital when I took over. When you have six to nine months of capital, and you’re coming up on an impending financial crisis, it could be better timing. Right?
Alejandro: For sure.
Todd Olson: We did end up selling the company. It took an incredible amount of work to get to that transaction. A lot of travel. Ultimately, it was a good outcome, and I think it was a good outcome because we had a positive attitude coming into it. It goes back to what I was saying earlier. I went from being the CEO of this company to being a product line manager at another company. So, I was reporting several steps away from the CEO. Frankly, I didn’t care. One, I wanted to do right by all the people. So, we had, obviously, a group of people that came over to the acquisition. I wanted to take care of my people. That was first and foremost. In order to take care of your people, you have to get wins. You have to be successful. It was this company, Rally Software’s first acquisition. I also wanted to make their first acquisition a screaming success. I wanted them to feel like—I didn’t want them to have Buyer’s Remorse. I wanted it to be a good thing. We’re also their first remote office, which had its own set of challenges, and I probably didn’t even realize those challenges until I started. We had to teach a company that I had been working with in one office to work against multiple. There were plenty of growing pains, but I also learned a ton. Those learnings have formed Pendo. We did our first acquisition here. A lot of the way we treated that was based on how I felt when I was acquired, and I was the first remote office. So, all these things come full circle I found.
Alejandro: How long did it take from start to finish this acquisition with Rally?
Todd Olson: You mean like from the—
Alejandro: From the time you guys discussed, let’s say at a board level, this is the route that it makes sense to go after until the deal was actually signed.
Todd Olson: So, it took about six months. We met with a ton of people. It ultimately came down to two real opportunities. One was more of a merger of equals where we’d recap the company, and two private companies coming together. For a while, we thought that was probably the best option because it felt most aligned with our vision. We challenged this transacting that, and then ended up working out with Rally. Now, I will say that for the time we told Rally, “Yeah, we want to do this.” to the time we wanted to close, we decided we really wanted to get things done by January 1st, 2009. It was like 30 days, and it was all over Christmas. Rally was typically shut down between Christmas and New Year’s. I’ll say like we all really busted it just to try to get that transaction done. I’ll say we signed all our paperwork December 31st. I think the last papers that were signed, probably 5:00 pm, 6:00 pm. So, pretty crazy. I mean, a tremendous amount of execution, and a great job by their legal team, frankly, their whole leadership team. I called up the CFO and said, “Can we make this happen in 30 days.” They’re like, “Yeah, we’ll try our best.” They did a phenomenal job.
Alejandro: That’s fantastic. And when you had like this, I mean, for you, what an unbelievable amount of pressure as well. So, you come in as a CEO. You take this on, and you have this amount left of runway. So, did you have a conversation with the board, and you guys said, “Okay. Should we go through the fundraising journey and try to raise this money that we need to extend runway with the amount of cash that we have left to survive? Or, should we go and explore and do the MNA process? Did you make a decision of going through that route, or what was that?
Todd Olson: Yeah, generally speaking, that was the overarching conversation. But the challenge was I wasn’t the original CEO they invested in.
Todd Olson: So, I tried to convince the existing investors to pony back up was difficult. Remember, this was also the time when Sequoia had done their presentation that was very doom and gloom. I’m not sure how many listeners recall that 2008 period, but raising capital, it was one of the hardest times in history. I know it seems crazy now with all the capital flowing around, but yeah, there weren’t people just opening up their pocketbooks to write a check back then. So, we discussed the fundraising route. It became quickly more of a “Let’s see if we can sell this thing.” We went in earnest on that. Candidly, didn’t spend a lot of time trying to raise capital.
Alejandro: Got it. You did a little bit the investing and resting once again, but this time was for four years. Wow, that’s a long time.
Todd Olson: Well, you know, it was a long time, but it flew by. As long as I’m learning, picking up new things, I’m having fun. I think there when I joined the company the management team said, “Look. We think we have an opportunity to take this company public. I’d just never been through that experience. I had worked at a public company when TogetherSoft, that the company before got purchased by Borland, but I’d never taken a company public and gone through that process as a member of the management team. I was a little bit attracted to that. I was excited by the experience. I was excited by the challenge. I knew it wouldn’t be easy. I felt like this gave me a good shot at it too. There were no guarantees, of course, when I came into it. I mean, anything could have happened, but I felt like if we worked hard and we executed, then we set ourselves up for it, and if the rest of the Board and leadership team wanted to do it, then that would be a great experience for me. That’s ultimately what happened. That’s a lot of what kept me there. It wasn’t the only thing that kept me there. I think the company had a great culture. I loved the product. I think there’s a variety of things that kept me there, but when you like the people you work with and when you’re learning, yeah, I think it was a great experience. I loved every second I spent there.
Alejandro: Cool. Then you left the business, and you worked for a year taking a look at what’s possible. At that point, Pendo comes into the picture. What was the process of incubating Pendo?
Todd Olson: When I left, I knew I wanted to start something. I did meet with a few local companies, and some VCs plugged me into a few places. I did a brief amount of consulting, but my passion is starting things. When I’m doing nothing, I typically think about the things I could start. So, no different this time. Once I was kind of freed up, I came up with the idea for Pendo quite early. The idea was born out of my experience at Rally. So, I was the VP of Product. I craved data on how people were using our product to help inform everything from are we building the right things to how do we price those things? How are we doing on customer attention in certain areas? So, the data was really, really valuable, yet shockingly hard to get in many instances. So, I came up with this idea very, very early. I sat on it. I took time. I spent time with my kids, traveled a bunch. I felt like jumping into an idea too quickly could be really dangerous. I mean, this is an idea that I knew—once you start something on an idea, you’re going to be married to it for a really long time. So, I wanted to feel good about it. So, again, I took some time. I did some consulting. I even thought about three or four other ideas just to put them up on a light board and say, “Okay, if we had three ideas, which ones would we take?” And also, in that time, I started reconnecting with old friends. Old entrepreneurs, folks that could be co-founders and started assembling a co-founding team, ultimately the co-founding team that started Pendo with me.
Alejandro: And that was four of you. That was Eric Boduch, Erik Troan and Rahul Jain as well. So, what were you looking in those, let’s say, strings or profiles for people to join you in this journey?
Todd Olson: Eric Boduch, he was the co-founder of my first startup. He’s, candidly, my best friend, so it’s pretty easy to pick him. I’d always wanted to work with him again. Once that first company kind of pivoted, and I got recruited down here, we hadn’t worked since. So, we hadn’t worked together since like 2000, something like that. So, it had been a lot of years. We always knew we wanted to again. So, that one, frankly, was pretty easy because I’d always wanted to work with Eric again. Rahul, he actually helped me, so 6th Sense to Rally. So, he was a member of the VC there. One thing about Rahul, he’s just amazing. He’s got a lot of diverse skills. You can kind of put him on anything, and he’s going to do a good job. He did our finances early on. So, he’s our utility player, our Swiss army knife so to speak. I mean, you’re starting something from scratch, you need Swiss army knives. It’s really critical in the early days. Then Erik Troan he was the key piece as well. I got introduced to Erik by a mutual friend who’s now actually our Chief Marketing Officer. But we had been told we should meet each other for years. Just never had time to. So, finally, both of us had time. We met, and Erik is a fantastic technologist. Not just a CTO, but the VP of Engineering, and he held other roles like VP of Product Marketing. So, just a great technical executive. But also, when I met Erik, I realized that here was someone that could run the technology part of the business because previous to this I’d always started as a CTO. I’d always had more technical roles, and in order for me to be the CEO of this company, we needed someone to run the Tech. It’s a full-time job. I realized I would get pulled into that area very quickly because of the other three founders, I was definitely most qualified or most technical to run technology.
Todd Olson: So, I think Erik, finally he was the key piece in helping free me up to focus more external, to focus on sales, to focus on the other aspects of the business.
Alejandro: Got it. Four co-founders are a fair amount of people. In my opinion, it is the absolute limit in terms of number co-founders. Otherwise, I think it becomes a little bit tough to manage everyone and all the egos. But again, in many instances it works. Like, for example, in you guys’ case. How did you all decide to divide the responsibilities early on?
Todd Olson: What was that question again, Alejandro?
Alejandro: How did you guys decide to divide the responsibilities between all of you?
Todd Olson: It goes back to we typically, which is good, had people with some general comfort areas. Well, go back to the very early days. In the very early days if you don’t have a product, you don’t have anything. I think first year, Erik Troan and I, we just coded. We both did because that’s what was needed by the business. So, both of us were technologists. He was clearly the CTO, and I was clearly going to relinquish all of this going forward. But in the early days, I was very much involved. Also, you could argue because my background was product management, I was the early product person conceiving about what we should build, and how we should deliver it, and what timing. So, I owned that piece of it, and then all go to market and things like that. Eric Boduch was a more marketing specialist, so he focused on marketing, and building awareness, and all those pieces. Then again, Rahul was our utility player, our Swiss army knife, and he did everything from finance to ultimately customer service and support. Everything else that was left over, he handled.
Alejandro: Got it. The business model of Pendo. So that the people that are listening, so that they really get it, how would you describe it?
Todd Olson: it’s a software service business. We help companies improve the experience of their applications. We provide a SaaS solution, we sell direct. Generally speaking, we analyze contracts that they can essentially embed a piece of Pendo into their software, and then use our SaaS application to understand how people are using theirs. Then also deliver AM messages to it.
Alejandro: Got it. So, at what point did you guys decide it was time to raise some financing?
Todd Olson: Pretty early on. We conceived the idea, and we realized looking at the market, while there wasn’t anyone with the exact feature functionality that we wanted, there were things that kind smelled a little bit. We felt like this was something that we needed to move quickly. When you’re in a space where you feel like time to market is critical, raising capital is your best lever because raising capital, all it does is it accelerates things. It’s about speed, so we pretty quickly, once we got our founding team together, and settled on the idea, we decided to go out and raise capital. So, that would be in probably September, October of 2013. We started putting together seed decks, started talking to folks. It took a little while. I’ll be honest. I think the initial round is probably the hardest round we every had to raise. We were new. We were a new team. We hadn’t worked together. I mean, Eric Boduch and I had, but the rest of the team hadn’t. So, I think it was challenging. Yeah, the goal was to get something funded so we could start January 1st, 2014, and hire a few people who decided to help us.
Alejandro: Got it. So how much capital have you guys raised to date that is public?
Todd Olson: 106 million dollars.
Alejandro: And I actually saw that you have some of the most successful investors in startups. So, some of them are Battery Ventures, Spark Capital, Salesforce Ventures, Meritech Capital Partners, FirstMark, Sapphire Ventures or Core Capital Partners to name a few. So, how did you meet these guys?
Todd Olson: The last one you mentioned, Core Capital Partners, that was one of our seed checks, and they invested in 6th Sense. So, I built a good relationship with Will Dunbar back through that experience. He reached out to me, and we started. He did say, “Look. If you’re interested in doing something, I’m in.” The seed round, we had to fill it out. It may sound easier than it really was, but Will definitely took the leadership role, and then we brought more folks around the table. That’s how I got to know Will. The rest of the folks, frankly a lot of it was just introductions. The Battery Ventures led our Series A. The intro there came from a prospector, a future customer. They’re now a customer of ours.
Todd Olson: A CEO of a company called TrendKite, which just got acquired by Cision, so congrats to them. The CEO knew me years past at Rally. He recommended to the Battery folks they should have a conversation with me, that what we were doing is pretty interesting. So, sure enough, we had a cold meeting with Logan who works with Neeraj Agrawal. I didn’t think much of the meeting, frankly. I didn’t think it was going to go anywhere, but they started doing some diligence. They started checking up on other folks, other customers that had been using us. They were impressed by the quality of our customer references, and that’s what led to the Series A.
Alejandro: Then you raised your next round?
Todd Olson: That’s what led to our Series A, which I think they announced it like 11-million-dollar round. Actually, just shortly thereafter, the Battery folks introduced me to one of the partners that eventually joined Spark Capital, so I asked Clayton, and he was originally at Redpoint. So, I met with him while I was at Redpoint. We had just raised capital. We, obviously, had no need for it, but he kept in contact. When he moved to Spark, he was very quick to introduce me to the Spark team, and it started to drive a process. Once I felt like we had achieved enough in terms of milestones and scaling the business, I started actively raising a Series B round. That led to the Spark Capital round. At that time, I also was connecting with Meritech. Meritech, just for context, was the, I believe, Series E investor in Rally Software. So, they were the last investor at Rally. I had known Rob since Rally, years and years ago. Now, they’re traditionally a very late-stage investor. While I was meeting with them in the early days of Pendo, I realized that we were not even remotely in their sweet spot, that we had to build the company, grow a little bit before it was even worthy of a conversation. But once we go to a certain scale, we started having conversation with Meritech, and that ultimately led to them leading our Series C financing. That was one where, candidly, they preempted. We had just raised our B. Only a quarter had gone by. Rob met me and asked if we would be open to it, and honestly just felt based in the strength of our relationship, I said, “Yeah.” He’s a great human being. I think that’s the other piece to think about through all these. While they’re all great firms, the individuals of the firms with whom we work are just fantastic people. I can show you—our board meeting was last was last week. It was Thursday, and I was fortunate enough—we had a board dinner afterward, and I had a couple of folks over to my house. Even my wife was commenting just how nice our investors are. I think these are long-term relationships; at least in my mind, they are. I think it’s just really valuable to pick people that you wouldn’t mind having over to your house for a glass of wine. That’s a good measure.
Alejandro: Yeah. Absolutely. Just out of curiosity because we were mentioning there that you have folks like Salesforce. So, in your mind or in your experience from what you’ve seen, what’s the difference from dealing with, let’s say, the typical VC compared to like a corporate VC?
Todd Olson: I think in our case, Salesforce invested actually in our Series A. Battery made the introduction. I think if you’re thinking about a corporate VC, it has to be a strategic fit. So, for us, we saw Salesforce, not just the product, but the ecosystem around it as being something very attractive long-term for Pendo. We think they are long-term strategic advantages to being tighter, being closer to Salesforce. Now, just because they’re an investor, there’s no guarantee of any other business relationships. Like the investment does not mean that we’ll definitely be a customer, definitely be a partner. Now, they do happen to be a customer and a partner, but boy, I can tell you, it’s a lot of work. So, I think people think that because you take strategic money that it guarantees a future business relationship. It does not. So, a tremendous amount of work still needs to occur to make that a reality. Now, it does mean that you can get the meetings often. I can leverage the ventures connections to get meetings with the right people, but again, no guarantee. Conventional wisdom says you should be careful about the strategic money you take from corporations because it can have an effect on ultimate outcomes, specifically, things like MNA outcomes. So, you have to be careful. But for us, we thought there was a higher-level strategic purpose for bringing them involved.
Alejandro: Talking about taking money, you’ve seen everything. You’ve been around the block quite a few times. For those folks, as well that are listening, how do you see the taking everything that people give you versus taking whatever you need. How do you see that?
Todd Olson: It’s a balance, of course. I think the key thing is—again, what you’ll hear from most entrepreneurs is to take more than you think you need because things always go slower than you want. I haven’t regretted taking more money throughout Pendo’s history. I’ll also say that every time you raise capital, it does create a set of expectations. So, be prepared for the expectations your raise is setting you up for. The other way to look at it is, typically, the amount you raised usually has some impact on the post-money evaluation. Everyone talks about their post-money. The higher the post-money, the better, etc., but you need to be able to clear that post-money evaluation ultimately. What I mean by that is whether it’s an MNA transaction, or an IPO, or another financing event, you have to usually go higher. You do not want to take a down round. So, the way I always think about it is, is this an evaluation that I can grow my business into? Is it a little bit aggressive that it’s a good deal, and I feel like there’s a lot of upside, and I think it’s valued in the company, but not too crazy? What you don’t want to do is do anything that you consider absolutely crazy, like that you can’t withstand market conditions or some change. So, I think in every single instance, we’ve raised a round that I would consider good amounts, good evaluations. Some people at the time probably thought that they’re a little crazy, but I never thought they were crazy because we’ve earned into them every single solitary time. It just takes a little time, so we eventually catch up to them in terms of getting a revenue there. So, I don’t know if that helps, but it’s kind of how I think through these things.
Alejandro: Got it. Going back to Pendo, how many employees do you guys have now?
Todd Olson: 296, as of this morning.
Alejandro: I think I read somewhere that you guys started gearing up to hire a big amount of people. I don’t know where you guys are in terms of thinking about that. I read it was 600, but what I wanted to ask you is what are some of the things that you consider when you scale a team so fast?
Todd Olson: You’re not just hiring to a spreadsheet. I think that’s super important. So, the quality needs to be there. It still needs to be a critical position to hire. So, yeah, we announced that we’re going to hire 590, essentially 600 people over the next five years. This is based on our standard operating plan. But I think it’s the key to really maintain quality. We do have a slightly longer interview hiring process than most companies. You know what? I’m okay with that. I’m okay with it being a little hard and a little time-consuming. I know some people complain about it, but I’m not here just to hit some hiring goal on a spreadsheet. We’re here to hire amazing human beings. We need to onboard them successfully. That’s how I think through this. If your organization can’t onboard people, where they come in and people are like lost after a few weeks, you should slow down. We have a number of ways to measure the success of onboarding whether it’s in sales. Of course, that’s probably the easiest thing to measure in general; people are kind of hitting their numbers. But even on the engineering side, people delivering code to production shortly after they get there. These are things that we should be seeing. If that can’t happen, then there’s a problem.
Alejandro: Yeah. So, I guess talking about the impact and the onboarding and all of that. At the end of the day, we’re talking about really, culture. So, in your mind and having been around the block as we’ve been discussing, what are, from what you’ve seen and what you have experienced, the real factors that determine the culture of the business?
Todd Olson: A couple of things. I already talked about the quality of people. I always say people are the raw ingredients in cultures. They’ve got the people, and it helps the culture. That’s number one. Number two is a big believer in not just having values, but being explicit about how you live those values. So, we do a lot of work to reinforce how our values guide our decision-making. It’s a lot of storytelling, but we’ve been focusing on this as a business for a while. We’ve got one core value called Brutal Honestly. A few years ago, we saw some people abusing that value. So, instead of eliminating the value or just ignoring it, we started telling stories every other week at our Town Halls about how people are living brutal honesty. People would get up and talk about it. People started realizing what the value meant when they heard more stories about how it was being lived. That to me is critical. That’s basically a measure of authenticity. If you have a set of values that you aren’t living or can’t describe how you’re living it, they’re probably useless. They’re not adding value, so make sure that you focus on what they are and how you’re living them on a day-to-day basis.
Alejandro: I love it. I love it, and I think you guys are based out of North Carolina. Being out of New York City or the Bay area, it must be challenging to really be in the hyper-growth arena when building a business. So, what were some of those challenges that you’ve seen?
Todd Olson: The first challenge that we went back to is raising capital. It just doesn’t exist here. So, all our capital pretty much came from outside the area minus one of our seed firms, idea fund partner who has been a great partner, but it’s just a small fund. So, raising capital is number one. Then I think talent. There are pros and cons of being here. I wouldn’t say it’s all bad. I wouldn’t say it’s all good. What’s good is a lot of great universities, and in some ways, you can say now we’re a bigger fish in a small pond, so we get a disproportionate number of folks applying. We average 5,000 applicants a quarter, just to give you a sense. So, it’s pretty significant numbers. The negative side is that there are very few people that are very senior. When I say senior, I mean having the experience that is specific to a high-growth SaaS company. Most of those folks are in the Bay area. Some of in Boston, New York City. So, we’ve had to be more flexible and more accommodating. We’ve also had to work hard to move people here.
Alejandro: Got it. So, this is a question that I always ask guests that are on the Dealmakers Show. I wanted to ask you this same question as well, Todd. If you could go back to the past and give yourself advice before you’re launching, let’s say your first business, Cerebellum, with everything you know now, what advice would you give yourself and why?
Todd Olson: So, going back to Cerebellum. I think I did not understand the whole notion of product-market fit, and what it meant to have product-market fit until I got to Rally Software. So, just before I started Pendo. So, The Lean Startup book hadn’t been written. I hadn’t discovered Steve Blank’s book, The Four Steps to the Epiphany. I think those books really changed my perspective on how you start a business and how you get product-market fit. That fundamentally was the problem at both Cerebellum Software and success. Both suffered from that same problem. If I’d read those books, I think both companies would have gone potentially differently. Then the other big piece of it is focused on getting the highest quality investors around the table. I think one of the things that’s been unique about Pendo is from my perspective just the quality of investors. They are a member of your team. It’s not just whoever you can get money from. I think a lot of entrepreneurs think, “Oh, it’s just money. They don’t really add any value. It doesn’t really matter. Money’s money.” I’ve heard that quite a bit. I probably said that when I was that age. Money’s not money. Trust me. There’s a huge, huge difference and you want people that are good, balanced voices around the table. Those two things are the biggest takeaways that if I could inform my younger self that I think would be valuable.
Alejandro: Got it. That’s fantastic. So, what is the best way for folks that are listening to reach out and say hi?
Todd Olson: You can do Twitter. I’m @tolson. Or feel free to just send me up an email. email@example.com
Alejandro: Todd, it was a pleasure. Thank you so much for being on the show today.
Todd Olson: Thank you, Alejandro. I appreciate it.