Walter Knapp | Crain's Denver

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Walter Knapp

Background:  

Sovrn is a Boulder, Colorado-based advertising technology company. The firm helps content creators with distribution, revenue generation and understanding who is engaging with their content.

The Mistake:

I believed too much in existing success strategies.

About 15 years ago, I was working in a corporate development position for a big software company called Novell. I was helping to plan things, identify companies to potentially acquire, and decide what parts of our company should be enlarged or shut down. It was your typical corporate development role.

As a result of my work, Novell bought a small business. I decided to raise my hand and say, “Can I try my hand at leading this business?” The CEO said: “Sure. Have at it.”

I didn’t look after it worldwide, just in North and South America. In that market, we had one big competitor. They sold software like ours – it was something companies would buy thousands of licenses for and pay a certain amount for each one – but we sold it for slightly less money. That was our big innovation.

So when I took over this thing it was doing maybe $2 million per year in revenue. The CEO of Novell told me that my job was to build it into a $100-million-per-year business in two years.

I explored a lot of the standard growth strategies. Maybe bring on more sales people or spin up a new distribution channel. I racked my brain for months, but these were things that anyone would do and it was no way to drastically expand the business.

After some time, I had a meeting with the chief information officer at HSBC, one of the biggest banks in the world. I went in to talk about our software, and he basically dressed me down. “I have no idea how you got in here to meet with me,” he said.

He asked me about how many employees Novell had – about 7,000 at that time – and about how much revenue we were generating – about $1 billion per year. He told me, “I have 44,000 people in just my IT department. My IT budget per year is upwards of $5 billion.” From his vantage point, I was dealing with tiny little numbers and I was a tiny little pipsqueak.

But, he said, I would love to buy tens of thousands of licenses for your software. It ran their servers and desktops, and he liked it, but he didn’t like the price. He asked me to recognize that he was an enterprise customer, that he had bigger fish to fry, and he told me to think about how I could add value for him. He offered to pay us $1 million per year each for all HSBC desktops and servers that used our software, rather than paying per license.

I believed too much in existing success strategies.

The Lesson:

If you really empathize with your customer and consider the economic model of your competitors, you can be creative about how to solve problems.

In response to that meeting with that CIO at HSBC, I changed all our contracts to accommodate something called an enterprise license agreement, which was basically the contract that he proposed. I took that out to big companies and offered them the $1-million-per-year deal and long-term contracts. I landed more than 100 customers, and we did $82 million in revenue in the last quarter I was there.

Every interesting company solves an important problem for someone else, but that is not how most companies think. Most think, “I found a disruption,” “I can leverage this technological shift” or “This worked for that other successful company.” Those are bogus answers.

What you should be doing is understanding what your customer’s motivations are. Then you can think about how you can add value for them. Everything else is a byproduct.

Walter Knapp is on Twitter at @wtknapp and Sovrn is at @sovrnholdings.

Photo courtesy of Sovrn.

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