3 Strategies I Used To Scale SecurityScorecard to $70M ARR, 1,700 Customers, & $200M in Cash

maybe you've seen one of their free reports or use them in a plg motion we're going to dive into the full growth story today potential IPO plans net dollar retention Revenue growth and more please help me welcome to the stage Alexander Yoli from security scorecard good to see man it's been way too long it's been way too long you remember that photo shoot from the the last time we were in your office that was fun I remember the photo shoot was a lot of fun and I think we hav played football you kicked my butt I know you

just set me up you wanted me to tell you everyone you kicked my butt but that was great so we we interviewed you back in 2022 already so just the quick sort of sound bite and then we'll go back into the full story growing from 70 million bucks to 130 million bucks of Revenue did it come from adding new customers or was it expanding current accounts more both I knew pick one if it what came drove more growth so big Focus for us today is expanding new customers because

what we do is we Pioneer the concept of how to quantify cyber risk we built a platform just like credit scores our security scores are used by over 2,800 customers worldwide nine of a top 10 Banks governments in 46 different countries insurance companies but the average deal size is about 30 to 40K okay right so a simple math is that if we help 10% of a customer base better

operationalize a product and really adopt it to manage their third body's report to the board we're going to double our Revenue without acquiring a single customer so upsell and providing more value to existing customer base is a big Focus yeah well let's get into the backstory uh it's not going to be 20 minutes it's going to be over the eight minutes so we'll talk fast but talking about your focus on customer success and growth there your experimentation framework which is great based off a book we'll share the book in a second then we'll wrap up with what you view as a CEO's job and how you've capitalized

the business as well so jumping into sort of customer focus uh just for people to understand what you do today help us understand where you're at how you got there you spend a minute on this sure well I was a chief security officer at Guild group and before that worked at companies like Goldman soch Oracle Microsoft and I saw a big big problem like a big epidemic that's only getting worse well interconnected to each other everything is moving to the Cloud yet you have absolutely no idea how secure your information is if you upload it to

Dropbox or if you store code on GitHub or you send your paperwork to firm so we pioneered a way to measure and quantify risk from outside and we built a software the idea appeared in 2014 was in 2014 just a sketch in a napkin zero customers two people zero revenue and uh we created a new industry to measure and quantify risk all the way into today where 70% of the Fortune 100 uses us as a paying customer as a paying customer

about 500 employees 70% of Fortune 100 going to probably finish this year between when 130 to 140 million ER did you personally code the original MVP I wrote the original MVP and my development team is still complaining about the code that I wrote and trying to eliminate it for the past 10 years so in hindsight I should not have written on the first code you won that war though it still works it's still there now this is what website looks like today just so you guys can all get your bearings on what they're offering again

you maybe have seen their their reports floating around in terms of the plg bottoms up motion uh Revenue growth goes like this and you've gotten to this point using and you call it sort of your experimentation framework so let's spend about a minute and a half on this framework help us understand what we learn from these two tests look the big lesson in the past 10 years is that ideas we thought were good end up being bad and I and many ideas we thought were bad ended up being good right so on the

right that's the big flop that I was proud of uh but I had this idea that we need to build a new functionality for insurance companies to look at concentrated risk if you have multiple companies storing your data how do you look for similarities if everybody is hosted on that so we took a 10 person team four months cost us millions of dollars to build a feature and then I didn't bother training the sales team I did not bother marketing did not add a single dollar of Revenue even though

when I was starting this I was so sure it's going to be differentiator for us on the left one of our developers at the time uh that was back in 2016 who's now a founder and a CTO of his own company um he said you know what I'm going to code up a widget where somebody can go to your website put in a URL and I'm going to send you a report with your score like literally nobody asked him to do it he just did it on a weekend and that became one of a lead uh leading Legion uh mechanisms for us for multiple

years where people wanted to find out the score how many people have downloaded that report all oh I mean there's over 880,000 companies who downloaded this report and so the point is most companies overvalue great ideas cheap quick experimentation always beats great ideas and that's the culture you want to build and a simple framework that we use that was actually uh it's a really boring horrible book but I'm going to summarize for you the whole idea over here should they buy the book

and just read no just Google it and Mike shre is actually our advisor we've been working with them for a long time but here's the idea 5 by five by five take five people five days $5,000 if somebody tells you it's going to take me two months to build a feature I'm like okay how do you do it in five days they're going to give you Blank Stare and say it's impossible I'm like okay maybe you can marck it up maybe you can send it to 10 people see how many people download the report and either prove or disprove hypothesis but we really adopted this

experimentation framework in every team technology product marketing sales because it really starts driving agility and um you know failure should be exciting if it's done in small increments and so this experimentation was quite crucial for us over the 10 years let's jump into part two CEO job and capitalization of the business so let's talk first on capitalization um obviously you have quite a funding story again we had the privilege of getting up and I actually took a snip here of the magazine it was great putting on the cover this magazine sold very well by

the way so you have a second career if you ever want to go we'll flip to your story here and what you'll see when get to the feature story here on security scorecard of the point 71 million bucks a billion valuation and you told me had 200 million cash in the bank that was the fosb table where you kicked my butt we built your everything graph up there on the upper right talking about specific product launches and on the next page in the bottom right uh you were kind enough to talk to us a little bit about how you had the equity structured which again we we always publish those in the magazine a lot of good data in there I want to talk about

that cap table right that pie chart a little bit uh because it's a theme right folks are thinking about how do they capitalize the business you did your first round in 2014 2 million on 6.2 post let me just ask you this looking back at the ceed all the way through the series D any regrets about how you structured any of these deals or the timing so the one thing that I really was careful and the previous speaker spoke about it make sure to nego like the valuation matters a lot less than all the other things you negotiate the

1X liquidation preference the control and the structure of the board very very important you know if you start agreeing to high evaluation because of some bells and whistles participating preferences and coupon mechanis Ms you kind of screwed especially in this environment so what I'm very proud of is that we never really took a crazy valuation we always made sure that we have good composition and control of the board to this day very very important so the board how many today five people seven

three there should be more they about seven seven eight people on a board and it's a even split common and preferred is an even split along with Independence but make sure you retain board control that's very important otherwise you'll get fired as a Founder regardless of whether you're doing a good job or a bad job by the way if it's your baby you want to control the company right uh make sure you don't agree to any crazy kind of coupon participate in preferred structures and be careful who you partner with the best investors are not

going to bother you they're not going to help you nobody's going to help you you're in by yourself no matter who promises what to you but the worst investors will actually give you better advice and and really create more headache for you so I'm quite proud that we man did a good job when you launched did you and your co-founder you split 5050 at the start or were you majority I was a majority shareholder okay because your idea yeah okay got it like significant like 60 70% and he was 30 802 8020 okay fair enough well then all

this is going to be wrong all right because you didn't own 50% of the start you owned 80 but people can just increase this by what is that uh 25% multiply by 1.25 the green col you'll get to sort of Alex's stick I mean when you look at these I just that's an embarrassing situation to start showing my n worth in front of people but it's all public it's all public it's important this is how you have to learn right that's SAS I mean it's actually more than that because look as a Founder if you stay for a company for a long time a lot of the time the founders feel that they need to be kind of like you

know slaves to the idea the simple argument you need to make with your board if you fully vested is look if you had to go recruit an outside Co you would have to pay what four five 7% so if you're doing a good job and you fully invested as a Founder regardless of what you have you should have skin on a game and you should have uh additional vesting stuff otherwise you can just leave and go start the next stuff so yes you you in your your your that little italic text you see below my chart I put together is exactly what Alex is talking about which is we assumed no new ESOP

pool being created at each round and we assumed the start was 5050 now what you're saying is obviously you had more than 5050 at start and it sounds like you got a new ESOP pool established at each round correct every round we establish and we reup all of the top performing Executives and the people don't perform or do an average job we get rid of them very quickly um and then I do think it's actually a huge mistake to have a 50/50 split with your founder when you start a company because even if it's 5149

somebody needs to be in charge and control the board I'm an investor I'm an angel investor into about 23 24 different startups at different stages um and the number one reason why many companies fall apart as founder conflict so make sure found confidence founder conflict conflict yeah so make sure you really love kind of your co-founders so and the same for your exact team you need to be on good terms you need to enjoy presence of you exec so my conservative modeling puts you at

current ownership around 10% but true or false you figured out a way to get above that by being smart as you've negotiated yeah that was round round of applause for being transparent yeah that's good we have to encourage good behavior you know this is very helpful but I thank you for being open you're really going to hait the next time and look on Co on a job of a COO there was a good article that came out about fer mode that some people read by Paul Graham resonated a lot I think with all of us

look I think like many articles I think there's a lot of true to it but one big advice do not listen for advice from people who have not done your job that's my number one advice it doesn't matter if you have a investor from SEO or andron we've taken money from top investors including seoa it doesn't matter if you're a board member is a billionaire or this or that or have been on a board of Oracle Google Etc if the person has not done the job take any advice with a grain of salt any generalization has lots of limitations

for example I hired just like in that article I my worst hires were polished Executives with Amazon Google they would come in I start micromanaging they would tell me I'm a terrible CEO and then I leave them alone for three months and they everything up uh and then I have to fire them and I get more bad Glass Door reviews and then reality is it actually matters it's called situational leadership it's not micromanagement the situations where you trust but verify and you dig and you

give very specific tasks but the best thing for us that worked really well is hiring up incomers with a chip on a shoulder and we really got very sophisticated about how to screen for talent we actually have a psychologist who interviews he used to be a coach to Steve Jobs actually and Larry Allison but he interviews every VP higher and above and I get a 40-page report on what does a person like not like culture curiosity and so the job I think of a CO

is to be the main provocator like you don't want to go solve the problem for all the people which is your superow as a Founder but you want to make sure people are curious and if they're not curious they're probably wrong people and so I I mean the average tenure of my team is people stayed for a while there people who've been with me for five years people who came back but um uh screening for culture fit up front has been one of the most important things I'm proud of that we've done in the past

couple of years and it really change the trajectory by being very sophisticated how you screen the talent guys in summary the past 10 minutes we touched on customer focus driving that growth from 70 million of AR to 130 which is impressive we talked about the experimentation framework cash flow positive by the way cashow POS growing on a cash flow positive way well I do have one I remember when I was in your office you said we was kind of off the Record but I can make it on the record cuz it's old now you're like you know looking at you know maybe iping right now you ended up not I kept watching the news no IPO what happened well you're

not going to go well right now if you look at threshold for IPO you're at like 3 400 million so the bar just moved so the bar just moved so I mean look U we're actively looking at tuken Acquisitions we're going to do this year 130 140 next year we're probably going to grow at 25 30% you buying when you say tucking you buying other companies yeah so we're going to grow organically at 25 30% and we're going to look actively at tens as well at 20 40 million era range

so I think there's lots of interest and opportunities ahead yep well guys heck of a story super transparent he'll be around more for lunch again got going launched the MVP to the detriment of his other engineering team but it got the job done quick experiments like the job reports or the report the security report ended up bringing in 85,000 leads the companies turned those leads via multi-product Suite set into an average customer value of 23 24 25,000 bucks per year now sitting at 130 million bucks of AR with plans to grow to another 140 150

million bucks in the next call at 6 to 8 months we're suiting the rooting for 140 in the next few months even the shorter period always faster growth of this guy guys give it up for Alex at security scorecard hey thanks awesome you're always great thank you so much