In San Francisco (CA), we meet the founder and CEO of Nitro, Sam Chandler. He shares his story how he came up with the idea and founded his company, how the current business model works, as well as Sam provides some advice for young entrepreneurs.

The transcript of the interview is provided below.

INTRODUCTION

Martin: Hi, today we are in San Francisco with Nitro and Sam. Sam, who are you and what do you do?

Sam: Sam Chandler, I’m the founder and CEO here at Nitro.

Martin: What did you do before you started this company?

Sam: Before this company – other companies. I’ve been doing this a long time now, it feels like, 16+ years. Started my first company when I was 16 and still in high school in Tasmania, Australia, which is a long way from San Francisco, but, anyway. My second company I started in Melbourne in Australia a few years after that, when I moved from Tasmania to mainland Australia to go to University. And then we founded Nitro in 2005. My first company was a web services company, my second company was an email marketing startup, and here we are with a document productivity company.

Martin: And what is the link between those three startups? Because most startup founders I talk to are having some kind of theme, some people like communities, some people like maybe SaaS. What is the link between your three startups?

Sam: I think people would be the first one. So, I brought across from my second startup to Nitro my technical co-founder and one thing that’s kind of being a constant across that company and this company is that we try and build a team that wants to work together for the long run. So, people would be the constant theme, if not the specific technology. From a technology or product point of view, the same thing about Nitro applies to our previous company, which is we’re trying to make it easier for businesses to do business. So, the email marketing company was all about giving much rich and more powerful email marketing tools to marketing teams, and with Nitro we’re trying to make it easier for businesses to work with documents.

BUSINESS MODEL

Martin: How did you identify the problem that Nitro is trying to solve?

Sam: We observed, the founding team observed in 2004 that most businesses were working with documents very inefficiently. And they weren’t using digital documents to their fullest potential or they weren’t using digital documents at all. So, big part of our mission has been helping businesses transition from paper to digital and then to transition to more and more powerful ways of working with digital, or working with electronic documents. So, when we founded Nitro in 2005, we actually started by releasing what was at the time the first alternative to Adobe Acrobat on the desktop. Today we are the leading alternative to Adobe Acrobat, nine years later. And that’s a big step out from working in very inefficient paperwork flows, for example. When it comes to kind of a next generation, or the next chapter for Nitro, it’s actually about smart documents in the browser or on mobile. So, we’re taking that original idea of trying to make businesses more productive with the things that they typically do with documents every day, and we’re just bringing the solution forward into a new era, one in which we work, increasingly on mobile devices and in a web browser.

Martin: And can you briefly describe the process for big corporation or maybe SME, and how your product fits in into this?

Sam: We have two key products. We have Nitro Pro, which is the Adobe Acrobat alternative and we have nearly 500.000 businesses worldwide running on Nitro, more than half the Fortune 500. And Nitro Pro is sold every single month into nearly 200 countries worldwide. So, Nitro Pro is a very established, mature product with significant adoption across the world in businesses of all sizes. You’ll typically find Nitro Pro deployed as part of the standard operating equipment inside of a team of department or across the organization. So, we find most often that Nitro Pro is bundled with Microsoft Office, so if you’re looking at what your classic knowledge worker toolkit on the desktop includes, it usually includes Microsoft Office and it should include Nitro Pro. Our second product is Nitro Cloud, which is all about document sharing and collaboration in the browser and on mobile. When you look at how Nitro Cloud is deployed, we are starting mainly with a SMB, or mid market focused with Nitro Cloud, so most of our customers have 10s or 100s of users, and they’re using Nitro Clouds for some of the things that they used to use PDF for. Instead of using Nitro Pro to stamp a signature, for example, to a PDF document, they’re actually using Nitro Cloud to initiate and capture any signing workflow. But we do more than that, we do collaboration things as well. So, when you look at the kind of the double deployment inside of lot of our customers, they’re using Nitro Pro on the desktop for all their first generation document sharing and collaboration needs, and then Nitro Cloud for their second generation document sharing and collaboration needs.

Martin: And how do you acquire those customers? Are you only acquiring them directly or do you use some kind of distribution of partnerships? I could imagine as you said, if you’ve got most of the time bundling them with Microsoft products, entering into distribution partnership with Microsoft or somebody who is selling a lot of Microsoft products?

Sam: We do actually do have such a partnership. We signed a deal with Lenovo a couple of years ago, and today we are pre-loaded on Lenovo machines worldwide. So, the vast majority of Lenovo machines in most of the major countries that Lenovo operates in, we are preloaded, Nitro Pro is preloaded as the default PDF solution.

Martin: And Nitro Pro is for free or is it divided into free and paid version?

Sam: Both. So, we have, in the case of Lenovo partnership, all Lenovo customers get a fully functional 30 day trial at Nitro Pro, after which time it goes to free mode. So, the free mode actually has a bunch of features, it’s still very useful. You can still create PDFs, you can still do basic annotations, you can still stamp a signature, many of the things that we would want to offer for free. But, once that trial period has expired, if you need features beyond what we offer for free, than you would simply upgrade and convert to a paid user.

Martin: A lot of startups, from my perspective, should start partnering with distributional partners. What would be your advice for them to just find the right partners and then convince them that they should partner with you?

Sam: Even though partnerships can be great, they can be hard. I think in the early days what most startups struggle with is the credibility that is required to land very big and important partnerships. If you’re a startup that’s six months old and, you, guys are in a room, the chances of you closing a multimillion dollar deal with a very big, Fortune 500 company or something like that, are very slim. If we had tried to close the deal with Lenovo many years ago we wouldn’t have had a chance. I think partnerships work when you’ve got enough scale and credibility, enough of a reputation and brand and the market, that you can offer something very interesting to a big partner. And those kinds of big partnerships can be quite transformational. But at the same time, you want to be careful with partnerships. It’s very tempting for some small companies to go out there and lend big partnerships, but you can imagine a situation where a small company lends a very big partnership and all of a sudden, that partnership becomes most of its revenue, and so the company is at risk of not having a business anymore if it loses just one partnership. So, we’ve been quite careful over the years. We never wanted to have really significant partnerships until we felt we were at scale, where we could take them on board and they would only represent a small percentage of our revenue. I think the strategy, when I think about the distribution that I would recommend to most software startups it’s the strategy that we pursue for the last, certainly since 2008, which is freemium. I think freemium is a wonderful model, I think it’s applicable in all different kinds of software businesses. There are some where it doesn’t work, if you’re selling very high value, enterprise great solutions with very long sales cycles, and very big dollar value deals, freemium perhaps isn’t the way to go. But, for everything else, for small business to the mid market, even someone in the enterprise space, freemium actually works really, really well.

CORPORATE STRATEGY

Martin: Sam, let’s talk about corporate strategy. What has been you market entry strategy? When you launched the product, did you just offered everything for free or did you use some kind of online marketing or did you use some other platforms, or how did you get the first 50.000 downloads of your Nitro PDF?

Sam: We actually started, for the first two years, we weren’t freemium. And we tried more conventional methods of advertising. We tried all the stuff that, if you’ve done it before, you realized that it doesn’t work like traditional advertising, buying advertising, buying print, buying banners. We had some success early on with SEO, search engine optimization, so we were getting quite a bit of organic traffic just because we were the first alternative to Adobe Acrobat. So, when people searched for Adobe Acrobat alternative, they found us. We were quite strong from an organic point of view, SEO point of view, we did SEM, of course, early on. And that actually, experience with SEO really informed of few, about the value in freemium, we realized that if we can get quite a lot traffic, and therefore prospects through having the right kind of content, imagine how much more popular we could be if we gave certain features and functionality away for free. And that was a real light bulb moment for us, and we generated significantly more traffic under a freemium model than we were able to generate with content.

Martin: You started with this kind of freemium model. How easy was it to convert those free members to paying members?

Sam: You get better at that over time. I think good freemium businesses are the result of, and I say this quite a bit to our team, a thousand optimizations. Very few freemium businesses hit the market and then have conversion rates that really amaze people. You start somewhere, and then you tweak, and you tweak, and you tweak, and you tweak and eventually it looks ok. We started of being essentially exclusively an online company, where we actually got to millions of dollars in revenue, between 5 and 10 million dollars in revenue before we ever had sales people. So, we were selling entirely online, we were an e-commerce platform, and it was a very successful and actually extremely high margin way to sell, of course. It doesn’t really require any human interaction. But, there was a limit at how big you can get, I think, with that model, in certain markets, not everywhere. Some markets can go quite big with zero touch. But we, a few years in, made the decision that we would also create an inside sales team. So, we worked very hard at optimizing the funnel, for our online customers and prospects, and when it comes to those who want a deployment of Nitro Pro or Nitro Cloud that is team sized or department sized, or wall to wall, in a company, those customers come inside sales team. So we have inside sales team here in San Francisco, we have one in Dublin, servicing European market, we have one in Australia, as well, serving Australia and New Zealand.

Martin: I would assume that you would serve or sell to SMEs online and to big corporation via inside sales. Is this assumption correct or not?

Sam: It is, absolutely. We sell very efficiently to SMEs, worldwide, both online and through our sales team. Clearly, for our bigger accounts that’s more of a consultative sales process, when the deal size is, would typically be often 10 or 20 times the size of the average SME sale.

Martin: You have a lot off international offices for your company and you are sitting here in San Francisco. How do you manage those teams over there? From a whole company perspective.

Sam: It’s actually really tough. San Francisco on the Bay Area is a very competitive place and the talent market is here, I would say, the most competitive anywhere on Earth, certainly right now. That might even flow but right now and for the perceivable future, this is a really tough place to build and sustain teams. It’s obviously a very expensive place to do that. But there’s a reason for that, it’s the innovation capital of the world and all those good things. When you scale, you probably want to have additional locations to scale into and we’ve been lucky in that we were Australian company initially, so we always had kind of a global view of the world. We had engineering in Central Europe from day 1; we have an operation in Russia, as well. We’ve got this distributed team and that gives us some flexibility now as we’re getting bigger and bigger, we’re 160 people today and we’ll probably grow to over 250 in the next 12 months. And so, when we look at how we scale, we look at scaling in all these locations because it makes sense. Some are higher cost, some are lower cost, some bring certain skill set, some bring other skill set, and so you want to kind of take a very global view, I think, if you’re building a global company, and that’s really important. But managing global teams is hard. You have to spend the time and the money, because it isn’t free, to make it work. You want to have people rotating between the offices as often as it makes sense. You want to spend money on very fancy video conference systems that you see here, with multiple cameras and surround sound audio, and big presentation screens and all those things, and you want to install expensive video conferencing solution, so you can make everyone feel a bit closer together. I would say that we have not, we’ve not always been good or successful at that, and, so that the office we’re sitting in is a new expression, we recently took the rest of this floor and this is only a couple of weeks old. We made a point with our new all-hands area, of having very expensive, wonderful video conferencing solutions in place, throughout this new space, because we want to bring those other offices closer.

MARKET DEVELOPMENT

Martin: Let’s talk about market development. You talked about this smart document movement. Can you a little bit elaborate the shifting from the old status to the new status and where your company would fit in all this ecosystem?

Sam: Sure. It’s a really topical thing for us. We spend a lot of time thinking about and with Nitro Cloud just starting to take off now, we only released it last year, in beta, and we’re kind of about to launch the product formally. And we’re super excited about that. Our basic view of the world, the easiest way to describe, is that, for the last 20 or 30 years, we’ve been sharing documents the same way. Particularly when it comes to what we would call heavy weight sharing. Heavy weight sharing is when you’re sharing outside the four walls of your organization, typically, maybe internally as well. But this is sharing that’s workflow driven, sharing where there are security concerns or permission concerns around what the recipients can do with that content. These are sharing scenarios where you might want to get something signed. These are sharing scenarios where you might want to have an order trail. In these scenarios, what’s really interesting is that there are few companies that are sharing in what we would call the smart way, which is on smart platforms like Nitro Cloud; and there are lots of companies who are not. And what that means is that their business workflows and processes are far more inefficient than those companies that are doing it the more modern way. And so, when we look at the world, we talk about kind of the last 20 or 30 years being first generation document sharing, which is PDF, what we’ve done, which is great, but we actually think there’s a better way to sit alongside PDF and we call that smart documents. Our first chapter on the first generation of document sharing really was PDFs attached to emails. You’re sharing a sales proposal with a customer, you share via email. You get some feedback back, you might send that for signature, they print it out and sign it and then they scan it and then they email it back and none of this is stored in one central place, they don’t have version control, it’s a bit of a nightmare. So, we were trying to solve that problem with Nitro Pro in one era, and now we’re trying to solve that with the combination of Nitro Pro and Nitro Cloud in this new era. Our view is that we’re still sharing documents like it’s 1999. If you think about it, most of us is still attaching PDFs to emails, most of the time when we do this heavy weight sharing. We want to change that and we thing that sharing documents on a smart platform like Nitro Cloud makes a lot of sense. That would include sending a document, having document analytics around when you share something, so how it’s viewed, what is done to the document after it’s been shared, the ability to turn features on and off, to lock it down, to secure content, to open back up again, all this kinds of things are possible on a smart documents platform. We think that the world is increasingly going this way, and it’s motivated by or driven by a number of things. Like the first, kind of obvious thing it that we’re now doing more and more productivity on our mobile devices and in our web browsers. So, being able to work with documents in those environments is really key. It’s also really difficult to do. To make some of these formats that have huge legacies, like PDF, work in these new environments. So, we solve for that. And another reasons that it’s a really big deal increasingly, I think, is that people want to have access to the documents that they work on and the solutions that they might need to integrate with wherever they are. It’s become more than an ecosystem world, where you can’t really have just unconnected applications that exist in a vacuum, you have to have applications and solutions that all your employees use, that are connected to all the other systems that they use, whether it’s Salesforce, or Google docs, or whatever.

Martin: When you started, how did you analyze the market before deciding that you want to enter it? And, if you analyzed it, how did you estimate the market size and whether it makes sense for you to enter this market?

Sam: I’ve got kind of two views on market sizing. I believe it’s either worthwhile, or I believe it’s a complete waste of time. In market, when you’re going after unknown opportunity, it makes sense. So, when we looked at the Nitro Pro market opportunity, we looked at the size of the Acrobat market and back then, in 2004-2005 it was in the 600 million dollar a year range.

Martin: Worldwide?

Sam: Worldwide, correct. And we said look, that’s a big market, we think we can get a chunk of it, and we were able to size it quite realistically. When it comes to our Nitro Cloud opportunity, we believe it’s in the 10s of billions of dollars, and how you size it, even putting together a number of different existing markets, so forecast markets, is one way to kind of sum it up. We consider to take office productivity and then we can sort of do online collaboration, we can do enterprise content management, we can do e-signing, and kind of put them all together and come up with some total number. But, even that doesn’t really do the total market opportunity justice, because what you do when you create new solutions that have no precedence, is you create new markets that are not yet being sized. So, I think if you compare our Nitro Pro and Nitro Cloud businesses, one has quite a defined, kind of billion dollar a year market opportunity today, that’s about the size of the desktop PDF editing market and collaboration document sharing market today, about a billion a year, and if you look at Nitro Cloud opportunity, it’s actually in the 10s of billions, as a rough estimate.

ADVICE TO ENTREPRENEURS

Martin: Sam, we always try to share some knowledge and advice with our readers and you have a very interesting story to tell, also about bootstrapping and raising money, from my perspective. What type of advice can you give first time entrepreneurs for how long to bootstrap and when to make the decision to raise some external money?

Sam: It’s a good question, and there’s no right or wrong answer. We chose to bootstrap or raise very little money for a long time. So, here we are, nine years in and profitable with 160 people, without disclosing revenue, that what people can roughly figure it out, it’s in the tens of millions. We got here with a total of 6.5 million of venture invested. Now, that’s something that we’re proud of, but it is the hard way to build the business. It takes longer, it’s harder, you live very much on the edge, for most of that time, because the only way you can grow is with cash flow and so, every single month you’re spending effectively every incremental dollar on growth. Of course, in that scenario, if you ever have a bad month or a bad quarter, than you’re “toast”. So, the thing about bootstrapping is you have to be uber-disciplined. You just got to run a very tight ship, you got to have your hands on the controls and you’ve got to be watching cash, you’ve got to be watching the market, you’ve got to be very in touch with every part of the business. Because if you lose concentration for the moment, than you might lose the whole thing. I think, for us, bootstrapping was probably a good decision, given where we came from, we started the company in Melbourne, Australia, the venture capital markets down there were not very big at that time, they’re still not very big today, and so we didn’t really had many options. We were partly forced to do it and we partly chose to do it. I think now, I can’t really talk about it, but we are probably very close to having some big news around our funding situation. And our view, at this time, is different to our view nine years ago when we began, and even five years ago. And it’s really driven by market opportunity. I think the simplest way to consider whether or not you need venture capital is do you have a massive market opportunity right in front of you, that is at such a scale that you need a decent balance sheet to go after before that opportunity is gone. In our case, we looked at this second generation document sharing opportunity, and we think it’s in the 10s of billions, we think it’s worth potentially raising a bunch of money to go after that. And I think for most entrepreneurs there is a point at which you are thinking about raising money, and if you have enough traction to demonstrate and you can connect that with big market opportunity, I think you should seriously consider it. It will really accelerate your execution, it will enable you to hire rapidly, it will enable you to go after big market opportunities that you might have otherwise have to wait year to attack. I think for most entrepreneurs today, you compare to when we started Nitro, it’s a very rich capitally ecosystem. So you don’t have to decide to raise a lot of money soon, that’s the great thing, you can basically choose to kind of bootstrap it for 3 or 6 months and try and prove out the idea with your founding team, go and raise the small amount of seed money to give you 12 months of runway, to kind of prove out that experiments even further and maybe get them really prototyped and in the market and get some beta customers. Then, if you think you’ve got a big market opportunity and you think you need to move fast, I would probably recommend raising money if you can. If I was to go and do another startup again today, I think that I’ll probably follow that more traditional model, acknowledging that it is a model that has become more the norm, particularly in the last 5 or 6 years.

Martin: You said that, on the one end side, you have to find a pretty big market, understood, how we can do this. On the other end side, you say if the window of opportunity is closing very soon and those market meaning that a lot of people are trying to get a chunk of this big market. How do you define that? How long the window of opportunity will be open? There’s some gut feeling, definitely, but whether it’s one year, or three, or five years makes total difference.

Sam: I think there’s a few considerations there. I think there’s, in every market it comes down to having a few leading players. You can establish dominant positions in a number of different ways, and it’s all about your go-to market strategy, sitting alongside your product strategy. So, if you’ve got the best product, if you’ve got the biggest brand, if you’ve got the best distribution strategy, those three things are really the three killer things to have. Very few businesses have all three of them. Even some leading players in categories we’re all familiar with may have one of two of those things, not all three. I think for entrepreneurs, you should think about your unique product differentiation, what is it about your product that is genuinely differentiated and sustainably differentiated. What’s something you think you’re going to be good at for a long time. I think you need to look at the brand and try and figure out if there’s a branding opportunity in that space to own, a part of a category in your buyer’s mind. Then, I think you can look at distribution as well, because there are a lot of companies that have got maybe one of the first two things but maybe distribution piece isn’t nailed. For us, we kind of think about the market opportunity in terms of, when we look at the competitive environment, all the spaces that we’re to or near or whatever, do we think that there are brand and product and distribution opportunities still out there for us in the next few years, and then we try and size them, even if that’s just in very broad terms, even if it’s as broad as saying 10s of billions of dollars, and then, if we figure that we can build a competitive, sustainable differentiation, across product and brand and distribution, in the markets we want to go after, that’s what we’re going to do.

Martin: At what point in time should a startup think about creating market enter barriers?

Sam: You mean market enter barriers for…

Martin: So that fewer competitors come to the space and they can earn more margins.

Sam: I think every business is trying to do that. Like, at the end of the day, as a great new book by Peter Thiel, I’m not sure if you’ve read it, called “Zero to One”, and in it he talks about kind of the inherent tension between sort of markets and capitalism. He talks about how monopolies can potentially be wonderful things, because you can throw off lots of cash and you can use that cash to innovate. The unfortunate reality is that very few companies have monopoly-like characteristics. You are kind of fighting competition all the time. I think every company should look to focus and double down on the things that are genuinely believes will make a difference. And those things do create the barriers. These days it’s very hard to lock out distribution, although you can try. It’s very hard to have a faultless, flawless brand, but you can try. Probably the main area where you can develop true monopolistic competitive differentiation, here’s couple of key areas I can think of, mainly around:

  • Number 1 product, like if you take Google as an example, they just have fast, superior search product thing in the market. That’s why they dominate as they do.
  • Another area of kind of key differentiation might be around distribution strategy, something that can be really contained.

There are these opportunities for businesses as they scale, I think for most early stage businesses, the chances of you creating genuine barriers to entry early on are pretty slim. As you scale, though, probably another really key competitive advantage that’s monopolistic but you can sustain is the network effect. If you can get a good network effect going than you’re in really good shape.

Martin: Sam, in terms of recruiting, what advice would you give a first time entrepreneur?

Sam: This is probably, I think the single most important topic for entrepreneurs, and, unfortunately, it’s also one that can’t really be tought. It’s a discipline that you will have to learn your way through, because pattern recognition and learning from your mistakes only comes trough experience. So, at the end of the day, if you’ve interviewed thousands of people and hired 100s of thousands of people you are probably going to get more of your hires right than somebody who has hired less than that. But there are some things that you can do, irrespective of how many times you’ve done it before, to give you a better shot of success. My first major piece of advice would be to be extremely disciplined about your process. So, as an example, we hired, I think we hired about 60 people last year, we would have had over 6.000 applicants, I think actually it may have had been closer to 7.000 applicants at the top of that funnel to get those 60 hires. So, we’re hiring only 1% of the total. And we run a really rigorous process to interview every Nitronal. So, to get in the door at Nitro, is a multi-step challenging process. And I think my advice is be extremely disciplined about that, establish a process, stick to it, allow no shortcuts. The only time you ever compromise on a process, you will come to regret it, I think in every single occasion we can think of where we’ve elected to take a shortcut, it has come back to bite us. So, have that process, have candidates prove to you that they can do what it is you’re hiring them to do. That can take many forms. It can be a paid programming exercise, if you’re hiring an engineer, it could be them white boarding something, if it’s an executive have them do a presentation, I think that’s really, really critical. We’ve learnt that the hard way over the years. People can talk a good game but might not actually be able to do what they say. So, have the candidate do something is a big tip I would give. Have as many people involved in hiring process as makes sense. Empower your whole team to have a view in hiring process, in other words, even if that person is, if the candidate, for example is not on the same team as that person of whom you’re asking for an opinion, that person’s opinion should matter and they should know that it matters. Cultural fit is critical. I think you should be hiring people who you want to work with. We sort of call it the beer test here, as we are Australian and we like beer. And you’re German so you like beer as well, so you could also have the beer test. But basically, if somebody is the kind of guy of girl you would want to have a beer with, they’re probably going to be a decent addition to the team. That’s assuming, of course, that they meet the criteria that you’ve established for the skills and experience components of the role. But we spend a lot of time and energy on making sure our process is tight, we’re very disciplined, we have the right hiring comities in place, we have a dedicated talent function, and it’s the only way that you’ll be able to bring great talent in the door.

Once you’ve done all that, probably my last piece of advice would be, if you’re really serious about winning in the long run, than the most important thing is the culture that will produce sustained success. So, if you take Nitro as an example, we had our first chapter, and we’re moving into the second chapter. We have a culture that allows us to kind of move from one thing onto the next thing, and onto the next thing, and onto the next thing. I think every company should strive to have a culture that is able to evolve, as the company’s needs evolve. So, creating a great place to work is really important. We are very big on what we call that Nitro culture and our values and, obviously those things up on the wall, around the office, and we really hold people to them. And if you can create environment where people will be successful, whether you’re selling software or selling cars, it gives the business enormous flexibility. And I think that’s our competitive differentiation. We will be successful over the next decade like we’ve been over the first decade if we’re lucky enough to be successful because this team and this culture is really strong.

Martin: Great. Thank you very much, Sam, for your time. And like Sam said in this recruiting part, don’t talk, just do. Now it’s your time to start your company. Thanks.

Sam: Thank you.

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