In San Francisco, we meet founder and CEO of Datameer, Stefan Groschupf. He shares his story of how Datameer was founded, the current business model, plans for the near future, and some advice for young entrepreneurs.

The transcript of the interview is included below.

INTRODUCTION

Martin: Hi. Today we are in San Francisco, in the Datameer Office, with Stefan. Stefan, who are you and what do you do?

Stefan: I’m Stefan. I’m the founder of Datameer and I have the pleasure and honor to lead this amazing company. We are in the big data analytics space and was considered a hyper-growth company. This is our support space, obviously, very, very roomy here. We’re at this point, 120 people. But, I don’t know, we hire a couple of, three to five, people a week, I guess?

Martin: Not too bad.

Martin: What is your background? So, what do you do before you started this company?

Stefan: I had companies since 1997. And before that, I did a German Abitur.

Martin: Wow! Okay. So, directly from school to becoming an entrepreneur.

Stefan: Yes.

Martin: So did you already start during your school time? Building a newspaper like Richard Branson did?

Stefan: Yes, exactly. In fact, I did. I did a whole bunch of things in school, the usual suspects you see at school, government, and those kind of things. I did the school paper. I was always very interested in back then what was considered as “new media”. During my degree, or Abitur, I actually already wrote a search engine for a local university library. In Germany, you have to do military after school. And being a little bit of digital hippie, I didn’t want to do that. And one way that you get around that in Germany is by founding a company.

Martin: Oh, really…

Stefan: So when the university library in my home town asked me if I want to continue working for them as a freelancer, I founded the company. Well, guess what? More than 20 years later, I’m still doing the same thing, maybe different people, different size, but I always worked in the data space.

Martin: How did you come up with the idea of Datameer?

Stefan: Doing high-tech in Germany is very difficult. In fact, I tried that for 10 years before I relocated to Silicon Valley where things work a little bit different as you can imagine. But what that is very prominent and very active in Europe is the open source scene. So I was a very active contributor to a whole bunch of open source technologies, and one of them was the search engine. Surprise, surprise, that’s my background. And the search engine, called Nutch, eventually spun off the storage in computer framework, called The Hadoop. So I was one of the first three guys that basically started the Nutch and then Hadoop, so to say. And Hadoop very quickly devolved into a very disruptive technology. Today, it’s considered a $20 billion market. But back then, I was sitting in my living room, on my laptop, writing code and thinking, “Oh, this is pretty cool.” So I always building companies, I always worked on really cool technology, mostly open source, and then off spring commercial technology from that. Hadoop turned into a really big market force. So it was logical to build Datameer, what is kind of a BI, business intelligence, data analytics product on top of the next generation storage in computer platforms. Hadoop is kind of the new Oracle, so to say. And what we do is we help to integrate data into the system, we make it super simple to analyze and visualize data. And with that, we’re helping companies to have hundreds of millions of dollars return of investment.

So five of the seven biggest banks in the world are using our product. All credit card companies, or the top three credit card companies, covering 90 percent of our credit card transactions, that go to our product. In the world, we work with the top three telecommunication companies in the world. We are the biggest German retailer and the top or the second biggest U.S. retailer. So, it’s very interesting to see what difference people can do by looking at data and finding insights.

Martin: What are the major differences between starting a company in Germany and starting it or expanding it in the U.S.?

Stefan: We still have engineering in Germany. I strongly believe in, that’s sounds maybe cheesy, in engineers in Germany. I think we have fantastic human resources, in Europe in general. The problems are a little bit, we have a crusty economic environment, right? The major funding of government or private investments go into larger companies. I think, Berlin wakes up a little bit. There’s a need in the start-up scene, but it’s not anywhere close as Silicon Valley. So, our model at Datameer is we had a German company for a while as I described. Then, I went to Silicon Valley and I kept our engineers. And we did good business, right? So, we had Apple as customer, AT&T, Verizon, and so on. We did really value here. That made clear to us that what we need is a United States based go-to market strategy. So when we converted our old company into what is Datameer today, our headquarters was in Silicon Valley. We had sales and marketing here, but we kept all engineering in Germany. So, I always joke, “Designed in California, manufactured in Germany.”

But the major difference, to answer the question, is that the U.S. economy is way more open to take risk with new technology. Our first customer was Visa and our second customer was JP Morgan. But 10 years before, I was knocking on any German company and they ask me, “Are you working for Oracle?” “No.” “Are you working for Microsoft?” “No.” “Are you working for IBM?” “No.” “Well, there’s the door.” But here, they see new technology as a unique competitive advantage. At big banks, they have a few million dollars a year, let’s say a million dollars, and they divide it by 10 and they invest $100,000 in 10 crazy new little start-ups and see if they can get a competitive advantage. If the technology is promising, they really partner with those companies. They drive the roadmaps. They really help those to companies to grow. That’s really interesting because as a start-up, you really want to work closely with the market. Developing a product in isolation will never work. You spend two years just in bloat. But partnering with those big companies and see what their problems, how can we solve them, really gives you the chance to build a relevant product for the market. And again, you only get customers that pay you off your bills, and that said, the sales cycles are shorter. People are more open. Germany and Europe, in general, is around three to five years behind any kind of big adoption of new technology. What is interesting though, is that they then buy the distance.

So they are not messing around. They don’t try to build themselves, but they really just buy commercial tools. So, I can only highly recommend that to develop your technology in Germany. That will most likely provide you great technology that is very innovative. Then bring it into a market where you have a much lower barrier to entry, and United States is one of them.

BUSINESS MODEL OF DATAMEER

Martin: Great. Let’s talk about your business model. Can you briefly describe how the business model works? What are the customer segments that you’re serving, can you describe them shortly? And what is really the value proposition that you are offering?

Stefan: So, we have a classical enterprise software business model. We have inbound of marketing campaigns that drive leads. Those are then touched by a team that we call Account Development Group. Those qualifying those deals, what you want to ask here is, “Do you really have a budget?” “Do you really have a problem we can solve?” Right? Sometimes, everything looks like a nail if you have a hammer, so you have to be very careful. The biggest mistake that a lot of entrepreneurs are doing is that, “Oh my God, there is this big company, and they are kind of interested,” and they go into a death spiral of engaging someone who has no budget, has no problem that you really can solve. Again, the biggest mistake is qualifying. You need to talk to a hundred people to find the three you really can sell to.

Martin: How do you check that? Are you really asking, what is your budget for this? Or is there some kind of circumventing them and getting some information indirectly?

Stefan: Yes. There are plenty of sales books written that will walk you through psychology of sales. Asking frankly is it a good idea. If you find the right person, so-called champion, or a change agent in the organization, that change agent will help you because you have the disruptive technology that solves the problem. If not, you should check your product, right? So if you truly believe you can help someone solve or improve something, then you really need to find the person that believes in you and then you work with that person and say, “Okay. Look, I’m sorry but we’re a small company. We can’t afford to mess around for the next six months. Is there really something? Who do I need to speak with who makes the decision?” Most likely, the guy that brings you in doesn’t have the check book or the decision-making authority. So you need either to find the players in the company, most likely, you have to do a map of who’s influencing who. Usually in big companies, what are the political plays? “Oh, it’s this business user over this IT user…” “He wants to have this Oracle technology, and he wants to have this new technology,” you have to figure it out, who I have to talk to about those guys to really get in the line. What’s your deadline? If you don’t have a deadline, and it’s not clear what happens if you miss the deadline, most likely, you don’t have a commercial product. Anyhow, so there’s a whole bunch of qualification questions that you have to do. I’m happy to go into more detail. Call me if you want to have advice. I’m happy to tell that entrepreneur.

We also have an expensive direct-sales force. That means we have, in the United States, sales representatives. They make $240,000 to $280,000 dollars a year, where 50 percent is base salary, 50 percent is commission-based. In this space, they make between a million to $1.5 million revenue, or bookings, a year. So they have a quota that they have to deliver as well. They have a sales engineer that makes another $220,000, also commission-based. If they don’t sell anything, they don’t make money. They make more if they do. But if not, they make more than everybody else. That’s why engineers don’t like to work in that business, where everybody is a little…

Martin: …extrovert.

Stefan: Yes, extrovert. Then you gauge with that organization with the direct sales force, then move people to multiple steps in the buying process. There’s two things. You need to have a sales process and every customer has a buying process. And you need to understand that buying process and really map this to each other. As a sales organization, you need to know what personas that I have to work with, what are their objections, how do I handle their objections, what is their job, what are their biggest concern, how can I position my product, can I address those concerns, all those things. And then usually, you get to area of interest in the organization, you map the organization, you get to know the different players. You go to a process of validation, you need to prove that you can do what you promised, usually it’s called the proof of concept, if you do technology. Then you go to a business justification because you’re most likely asking for a price that seems high for the customer. If not, you have the wrong pricing, right? The perfect pricing is probably that the people pay but complain about it. So, most likely, go to a business justification process and you don’t have to prove, “Okay. Well, if we improve 10 percent of this business process, that saves you a million dollar. So, it’s okay if I ask you a hundred thousand dollars from you.” That is a whole bunch of presentations, and a few spreadsheets you deliver to the customer, and then they eventually say yes or no, then you make a deal. Making a deal means you go to 30 or 50 pages of legal documents, especially as you work big companies. Then you close the deal and you charge.

It’s interesting enough, for more than 10 years, I always was very blind and thought, “Oh, I just built this great technology and it will sale itself.” “It’s click tool, it’s online, and it’s software as a service.” If you want to build a real company, the process I just described, especially for an enterprise software, obviously for consumers it is different. But in enterprise software, that’s how it works. Putting it on some website and waiting for some people to come, that’s not going to happen.

Martin: What are the typical sales lead times?

Stefan: In our business, it’ half a year, from first touch to close, and it very much depends on the deal size. So if we make a multimillion dollar deal, it will take more in 12 months. If we do a 100K or less deal, sometimes we compress that to a couple of three months, but then, we are lucky. So on average, it’s for four to six months.

Martin: Okay, great. Can you tell us a little bit more about how are you trying to set up the pricing strategy. You said that you are trying first to identify the value that you are creating for customers, and then based on that, it takes some kind of share and put an absolute number on there. But, how did you differentiate you pricing, based on different customer segments?

Stefan: What you want to do is you want to number one, what’s the competition charging, right? So that’s the homework you have to do. And number two, you go to the market with a price that’s way too low, right? Because you will start-up, you will only get a few customers, and then what you need to do is build this relationship with the customers and ask them, “What’s the value you get in out of that?” You don’t want to ask that question the day you sold, maybe as well. You want to ask that 3 months later, 6 months later, 12 months later. Then based on that, you can adjust pricing. Pricing is a lot of trial and error. So today, we still do pricing trials. We have certain geographical areas where we change the pricing and see does all sales expand or do they contract, those kind of things. In the last 2 years, we doubled prices four times, just to give you the idea. And you double until you reach the point that your sale cycle slows so much down and you don’t have an adoption and you correct. That’s what you do. You always have a pricelist and you get discounts, right? But it takes some courage in the sales organizations now to really push the pricing too. Sales representatives work a little bit different. If you are on a company scale that I am now, it’s a lot about group psychology stuff I do. It’s a lot about how you motivate people, how they tick, how they work. Sales representatives are always excited about huge big companies and then they give them dramatic discounts because all those companies have professional negotiators. Going after the Fortune 500-1,000 isn’t a bad idea as a start-up, and then you can build up. We got lucky, we had a real interesting product that was interesting for a Fortune 100 and that was like all major market segment and we make huge deals there. But historically, my experience is you want to start with high volume, lower-touch model, and maybe you get to skim the top, where you go in there, and you expand the deals. So may want to consider an upsale team, not just the sales team hunters that just hunt for deals, but are also considered farmers, that need to expand the deals. And then a renewal team, and so on. So you get into the door, and then you put on as many user or use cases on the platform that you just sold to them. Anyhow, so there are different strategies around that. Pricing is a tricky one that’s related to strategy. I definitely recommend having low pricing and then working to expand. Lower the barrier to entry to get the logos and then expand when it comes.

Martin: Okay, great.

CORPORATE STRATEGY

Martin: Stefan, let’s talk about corporate strategy. What do you think is the competitive advantage of Datameer?

Stefan: I believe there are only three different kinds of companies.

  • Company number one is using Moore’s Law. Moore’s Law is every 18 months hardware capacity doubles to an advantage to optimize processes. That’s the strategy we’re in.
  • The second category is you take out the middle man. Most likely, you get to the infrastructure technology that you can do this. That’s like Uber, where they take out not the cab driver, but actually the cab company in the middle that used to make a lot of money. Or think about the iTunes, think about the music labels in between. And Amazon now with their publishing, they take out the publishing houses, and so on. So that is taking out the middle man and another optimization.
  • And then, there’s Instagram, Facebook, eHarmony, and the Timbers of the World. I’ll leave to you what kind of category that is. That’s all around, playing with the most fundamental human needs.

So again, we’re kind of in the first category and what we do as a product is we disrupt the way people use to do data analytics. We significantly shorten the time to insight with our product by changing the way you do it. And the way we can do this is we have this new storage and computer platform that could deliver storage in computers at a cost that is ridiculously lower compared to what you had before. So what we can do, if this is by throwing cheap hardware after the process, we are shrinking the time to insights from 12 to 18 months with historical data analytics technology that we have ETL, dataware houses, and API on top, we put this all into one product, and now we have a hundred million dollars ROI in eight weeks and single person in one of the biggest Telcos companies in the United States, for example. Well a very big German Telco had similar ROIs. Also, it was just six weeks in a single person. Tremendous ROIs and very short. If you think about it, the price of hardware is going down, but the price of people is going up. On the other hand, we have lesser time to make decisions, but the complexity of data is going up. This are two catalysts here that really drive our business and that is our strategy, to go after and taking advantage of lower storage of computer and higher price for human beings, more complexity in data, more data, more data sources, more structured and unstructured data, but then again, less time that you have to get insights to all of that. This is kind of the direction that we’re going.

Martin: Okay, great.

MARKET DEVELOPMENT

Martin: Stefan, what market trend can you identify in the big data industry?

Stefan: It’s really interesting. I personally have been to maybe three kind of hype cycle or Crossing the Chasm technology adoption waves in my life. I had search engines technology, I had the EJB applications server, I’ve worked at JBoss application server as well. So you always see the same thing. How do I get certain majority that enable the next generation of technology platform? And based on that, you can build next generation applications, and on top the next generation solutions. And solutions are usually very use cases or very vertical-focused. So obviously, HP, Dell, and Intel are in the hardware business. In our space, you have Cloudera, MapRs, platform business. Oracle, Microsoft, and SAP as well, they obviously late adapter. And they always have the innovators dilemma. They always have to kill their cash cows in order to get to the next generation. We are on that enterprise application layer.

We are the second closest to the checkbook, to the problem, and what helps. Platforms are very quickly commoditized. They sell earlier. So if you have that technology wave, the Clouderas, MapRs, they are getting bigger faster. But if you look over a period of maybe 10-15 years, the application and solution business that will make the most money. So we are here and we’re reaching a little bit into solution. Our products, specifically, we work with finance, we work in retail, we work in Telco, and then we have bucket that we call emerging. From the use case perspective, it’s three major areas.

  • It’s customer analytics, where we help people to shorten sales cycles, increase conversion rates in the sales process, understand customer behaviour, identify credit card fraud, kind of in general understanding customers better by bringing multiple data sets together.
  • Or we do operational analytics. This is where Telcos understand who’s my cell tower and makes sense to upgrade the cell tower.
  • And then we have a lot of what we call new data products and services, where people basically selling data or providing a data-driven service. In selling data, I don’t mean personal data specifically. This could be geographical data to do research for natural resources, this can be in general market data, or whatever. You usually have to pre-process and really package that stuff. Data is like raw oil. Data is the new oil that needs to go the refinery process before you get to the insights that you really can sell.

Martin: When you looked into the different industries, can you identify different adoption rates in those industries?

Stefan: You always can. This is true for everything. You will always have the concept called crossing the chasm, and you can apply this to different industries because you have industries adopting early on or later on. Finance historically, especially in the area we are, are early adaptors. So the investment banks of the world and the high frequency trader, they will adopt technology as early as they can because it’s a competitive advantage. Next one are Telcos. Telcos also go and adopt technology as early as they can, a little slower moving than finance. Then we have retail because retail right now is under high pressure. When put a whole bunch of categories, eventually you have healthcare, and manufacturing in very late then you usually have those. Of course that’s the big picture. And before you have all these, you have emerging. So, you have gaming companies, mobile app companies, you have Facebooks and Twitters, they will always be on the forefront because that’s their business model. But if you go to a broader market… The problem by the way, the reason I am saying the you have the early adaptors, Facebook and Twitters of the World will not buy technology. You can spend 24 months, they will go for open source technology or build it themselves. Depending on their business model, they will adopt technology trends earlirt on but it will be extremely hard to sell to them.

ADVICE TO ENTREPRENEURS FROM STEFAN GROSCHUPF

Martin: Imagine your little son comes to you and asked, “Daddy, I want to start a company.” What advice would you give him? “You should do this’” or “You shouldn’t do that’” or “These are the mistakes I’ve done, learn from it.”

Stefan: Well, first of all, I’m concerned to think about a little kid. It looks like start-up life make me look old. So if an entrepreneur or someone comes to me and wants advice, the beauty is there is blueprint of all companies and you can really follow that. I’m an engineer by background, and it took me 10 years to learn that just a great product doesn’t sell by itself. You need strong marketing and sales. What is really cool is you can consider, as you do your product engineering process, building marketing and sales can work in the same way. You have release times, you have projects, and milestones. You can absolutely manage marketing and sales in the same way on how you manage your product development team and definitely encourage everybody to look at this way. But I would highly recommend you technical founder to let go, and they have to grow. Every three months you have to grow and you have to let go after technology and just focusing on that, I advise a whole bunch of start-ups. And they always think, “Oh, if we add this feature, then we will just sell better.” No, you just take all your developers and work on your website, work on an online trial, and you help to make it very easy to try the product, then work on you sales process, and then you work on PDFs that help to sell your stuff,” and so on. Don’t just hide because it’s your comfort zone in the development process. I think that’s may be the advice. Don’t hide in your comfort zone but go out and try to really understand and make the other processes work because you will just waste time.

And then maybe, another really good advice, “The difference between networking and not working is one letter“. A lot of entrepreneurs think that going to a whole bunch of parties, events, and talk to people will build their business, I know being an entrepreneur is being hip right now, but go back to the basement and work, you know. That’s the only way you will be successful.

Martin: The problem with most networking events is that, not all your customers are there.

Stefan: Yes. You’re usually wasting time. And the business development or partnerships are all a waste of time until your $50 million company, there is no reason to have any kind of partners from a technology or from (maybe from) a sales perspective in Europe. Maybe if you are around $10 million, it starts to make sense to have sales partners or channel strategy. But before that, you’re just wasting time. A lot of entrepreneurs don’t focus and waste time and stay in their product development comfort zone.

Martin: And what would you recommend young entrepreneurs who are currently outside the U.S., especially the Silicon Valley, working the tech product. Do you think they should really move people here so they can raise money here? Plus one of the major requirement is having an Inc., for example. Do you think they should just stay there and just try to focus on their market? As you said before adoption rates can be so much higher.

Stefan: Founding an Inc. corporation in Silicon Valley and having an Engineering in Germany worked incredibly well for us because hiring engineering in Silicon Valley doesn’t work anymore. Google or Facebook is hiring everybody. So that’s a very successful model. A lot of people are afraid to do that. If you want to get a venture capital out of Silicon Valley, where 98 percent of our venture capital in the world is. Then you need to make lower barrier to entry for VCs. When you say “I am GmbH”, they like “Gesundheit”, they don’t know what that is. They would never invest into that. They have no control. They would want to be in your Board meetings. So then, if you build a company, and you want to build it for the first time, guess what, the next 10 years you will be very poor and you will eat noodles and tomato sauce. You have to have a little bit of that… You have to have a very high pain threshold because you will, on a daily basis, experience disappointments. It will be extremely hard. One out of 10 million get a big hit, like Facebook, right away, and building company is extremely hard work. And as you want to make a very low barrier entry for your customers, you need to do that for your investors. You need to present yourself as the business savvy, very self-aware person. You want to go and to say, “I’m not the CEO of the future, but I am the CEO right now, and you tell me if you find a better one and I will be the biggest shareholder because I have the idea. But let’s build a company together.” So that’s the kind of message you want to get the VCs. You want to go find a product for market fit. And again, you want to build a structure that is easy to invest in. If your structure has intellectual property in Germany, and then you have a subsidiary in the United States, that is very difficult to invest in.

Martin: Okay. Thank you very much for your time, Stefan.

Stefan: Absolutely.

Martin: And the next time you are starting to think about starting and growing a company, and you’re a tech savvy founder, try to develop your sales process as you would in the product development cycle. Thank you very much.

Stefan: Great.

Martin: Thank you very much, Stefan.

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