Whoever coined the term ‘unicorn’ for billion-dollar start-ups presumably did so because unicorns are both magical and rare. But they’re also mythical. Indeed, there is something inherently suspicious about tremendous valuations that seem to come out of nowhere. Too often you blink and find the Next Big Thing was little more than paper and hot air.
What then of Qualtrics, an even more mythical beast – a tech unicorn that’s both profitable and bootstrapped (grown organically without external capital)? In Silicon Valley, that would surely be heralded as some wonderful violation of the entrepreneurial laws of nature. Except Qualtrics was founded in a basement in Utah, not Palo Alto - and you’ve probably never heard of it.
The reason is that Qualtrics is a data company. Before you stop reading and start organising your spice rack instead, Qualtrics is not one of those tedious big data companies doing the rounds. CEO and co-founder Ryan Smith describes his product as ‘fast data... sophisticated research made simple’. It gets insights from customers or employees instantly by asking them. In a nutshell, it’s the enterprise version of SurveyMonkey.
‘It’s way bigger than surveys,’ Smith counters. ‘I have a project where I need data, and the data I need I don’t have. It doesn’t exist. I’ve got to go get it.’
And that’s better than big data?
‘The most important data is the data you don’t have, not the exhaust data that’s already behind you’.
Smith is every inch your modern American entrepreneur. He gestures a lot. His speech is free-flowing and peppered with phrases like ‘I’m super pumped’ and ‘we’re going to disrupt ourselves’. To put it in perspective, the first time I met him, he gave a skateboard to the Prime Minister of Ireland. But his enthusiasm for his product is infectious - I nearly left the interview with a Qualtrics subscription myself.
I didn’t, of course, and neither did the corporate clients Smith went after when he launched the company with his family in 2002. Undeterred, he looked for customers in the world of academic research. Any VCs in the West Coast who may have been paying attention will not have been impressed.
‘It was a horrible business model to start with. No venture backed company’s going to let you go out and serve a million academic users who are extremely demanding, hard to support because they’re all the best in the world at something – if they have a question who’s going to answer the phone, right? And they have no cash.’
In hindsight, the plan B strategy of targeting academics turned out to be a stroke of genius. Qualtrics now has 99 of the top 100 business schools, and is used everywhere from MIT to Oxford and Cambridge. ‘Every single person I talked to said you cannot do this, you cannot give control of the research process to the user,’ says Smith. ‘But [the academics] said it was beautiful. We basically got some of the brightest minds in the world using Qualtrics. And teaching people.’
The road from business schools to boardroom isn’t all that long. Gradually, Qualtrics began to seep into the corporate world, as students who'd used the service for their dissertations entered the world of work. It now counts 8,000 brands as customers - impressive, but for a 'fast data' company it certainly took its time getting there.
In part, this was because Smith remained committed to the bootstrapped approach. It was only in 2012 that he accepted VC funding ($70m from Accel and Sequoia), after getting through the recession with three years of triple digit growth.
‘There’s a bunch of companies with super high valuations who haven’t been through that,’ Smith says. ‘Growth at all costs – that’s a model... great when everything’s good, but when the market swings, which it will, you’ll see who’s swimming without shorts.’
Smith has a little mantra that he repeats several times, ‘nail it and scale it’. The idea is simple – don’t expand too fast, whether that’s by taking outside money or not, before you’ve got the model right.
After ten years, clearly, he’d nailed it. Now, over the last five or six, he’s been very busy scaling it. After another round of funding in 2014 ($150m from the original two investors and Insight Venture Partners), Qualtrics went international, opening offices in Ireland and Australia. Headcount doubled to over 1,000 in a year (‘that’s nuts’), and revenues are now ‘well over $100m’. The firm has been profitable and cash flow positive the whole time.
Aside from pushing into new countries, Smith has also expanded Qualtrics’ remit. ‘We have three industries we attack – market research, a $30bn industry, we attack everyone who’s doing anything with customer experience, and probably the hottest area right now is everyone’s using Qualtrics to run all their employee feedback and engagement.’
The idea is nothing less than to become the platform for data management within organisations – ‘self-service at massive scale’. There are plenty of naysayers this time too, but Smith is unsurprisingly undeterred, having faced similar resistance when entering academic research. ‘I’m watching the same movie all over again. It’s almost déjà vu.’
There are challenges facing the company though, not least growing pains. Smith still gets new employees to introduce themselves in regular, video-conferenced, town-hall style meetings between the six different offices, but that will be hard to continue if headcount keeps rising. Smith isn’t nostalgic for the good old days, however.
‘We had a 20-person team in the basement and I hated it. No one knew who we were, we didn’t have any money, we couldn’t do anything. I couldn’t wait for the day when we’ve got a big office in Europe and we can do all these things.’
It’s refreshing that Smith doesn’t mythologise those early years, as most entrepreneurs to emerge out of basements or garages do. He may look and sound like a multi-million dollar Silicon Valley cliché, but the way he talks about building his company is more reminiscent of a small businessman done good. His company was, after all, profitable during its first ten years because it had to be. It’s given him a long-term view that many in tech lack.
As a result, Qualtrics is unlikely to disappear in a cloud of magic unicorn smoke any time soon. ‘We’re building a business to keep,’ Smith says. ‘Qualtrics is going to be a multi-generational company.’