Startup Lessons Learned: How past failures shaped the way Dustin Sapp runs fast-growing Tinderbox
Dustin Sapp never expected to be a serial entrepreneur. He is as surprised as anybody to be the co-founder and CEO of sales automation software startup Tinderbox. The plan after graduating from Rose-Hulman Institute of Technology was to marry his high school sweetheart and begin the long journey to upper-middle management at one of those huge companies that offers a pension.
Well, he did graduate from Rose-Hulman and he did marry his high school sweetheart, but an internship at a small company and a class project steered him toward a life among “those crazy startup people” and he’s never looked back.
“As an intern, a sophomore in college, I saw the impact a small team could have,” Dustin said. “Later as a junior a professor told us that if we wanted to get an A that we had to get our idea funded. So we wrote a plan and built a business and the prof introduced us to Bob Compton and he said he would fund it.”
Because of those experiences, Dustin has actually never held what he calls a normal job in an existing corporation like most people.
“Before Tinderbox, I started two other software companies and neither had an exciting outcomes — definitely not home runs,” Dustin said. But those shortfalls taught him a lot about the right way and the wrong way to run a business.
In one case, Dustin tells the story about how he and his team at one of the earlier startups were working to win a very large piece of new business and it was down to them and a company on the west coast. “We kicked their butts and they saw that they would never be able to win against us so they bought us.”
He learned two big lessons from this: 1.) If you’re going to sell your business, sell it for cash, and 2.) company culture matters.
The deal to sell the company looked great on paper, but the reality of merging staffs and discovering a very dysfunctional and friction-filled work environment meant that the joint company was doomed. In the end, the company shut down over the holidays and didn’t even offer longtime employees any severance. Someone from the original Indianapolis-based company bought up the assets for pennies on the dollar and all of the customers came back because it was the culture that killed the company, not the product.
After a second “bad culture” experience, Dustin learned to trust his own style and instincts rather than take the word of more experienced business leaders as gospel. The turning point for Dustin was when he took some bad advice on how to fire and employee who just wasn’t working out. The experience was unnatural for Dustin and terrible for the employee, but even worse was that Dustin later learned that the way he let that one employee go had ripple effects throughout the workforce causing turnover up to a year later.
“Being confident to lead the way I want to lead makes a difference,” Dustin said. Whatever he’s doing it seems to be working because people are clamoring to work at Tinderbox. Dustin gives credit for the company’s cool factor to co-founder Kristian Andersen, but acknowledges that he and third co-founder Mike Fitzgerald both bring elements vital to the company’s success.
Kristian comes from the design and user experience background. Mike comes from the sales and business development background. And Dustin comes from the engineering and operations background. Everybody has to mesh well and communicate well in order to succeed, but two things matter more than anything else — building the product and selling the product. According to Dustin, co-founders who don’t build or don’t sell will soon be met with friction from the partners who do. If you can’t build you better be able to sell and vice versa. Otherwise it just breeds discontent and that helps no one, especially in a startup environment.
Building a software company today is drastically different than it was 10 years ago. Software startups typically had to spend $250,000 in hardware, do all the market research and build it completely before they made a single dime in revenue, Dustin explained. “And then you ha d to hope you got it right.” Today’s market is so different you can have a software business up and running in a matter of weeks for next to nothing compared to the half a million it used to cost. Tinderbox took just 100 days before its first revenue. They added a few new customers each month and continuously evaluated the product and proved concepts. Then the market softened in 2012 and 2013, electronic signatures became more commonplace, and Tinderbox seized its moment with a better way to create and manage sales proposals. That’s when the co-founders began more significant investment with more aggressive growth goals.
“We did things differently,” Dustin said. “When you had a software business a few years ago you had raise $250,000 to $1 million to get started, but for Tinderbox we knew the dynamic had changed. We wanted to be protected from diluting equity until we had serious revenues, paying customers sticking around with a good product and vision. We went to five or six angels and friends and raised $150,000. We believed we could prove out what we needed to prove over a year. Now we have raised four rounds of financing much smaller than typical because we knew it was all we needed to get to the next level. We were very specific about the kinds of money we wanted at table with people we knew. Smart money. Really smart people well aligned with vision and values and no second guessing. Investors trusted us because we delivered and made it straightforward. With every round of financing we make sure we can cover it with revenue. Every dollar we burn is around client acquisition.”