Phurnace Software adjusts its focus, finds success
By Lori Hawkins
AMERICAN-STATESMAN STAFF
Monday, February 23, 2009
What has changed at Phurnace Software since it was founded two years ago?
Not much. Only the product, the marketing strategy, the customers it wanted to target, its hiring plan and the amount of money it intended to raise. Also the sales strategy — three times.
"At one point, we stopped writing our business plan in Word and just did it in PowerPoint because it was easier to change," said Daniel Nelson, co-founder of Phurnace, which won the 2006 Moot Corp competition at the University of Texas McCombs School of Business.
Nelson spoke last week at a reunion of previous winners of the annual Moot Corp event, which pits student-originated ventures against one another before a panel of judges. Winners receive free office space for a year at the Austin Technology Incubator as well as consulting services to kick-start their businesses.
During a panel discussion at McCombs, founders of seven winning companies shared tales of life in the trenches. There were a number of common themes — from marketing campaigns gone awry to on-the-fly business model relaunches to astonishment at how fast venture capital gets spent, despite the most conservative plans.
I spoke afterward with Nelson about what he has learned since his Moot Corp days, when Phurnace, which sells software that accelerates the deployment of Java applications, was just getting off the ground.
"One of the biggest lessons was how you've got to stay agile," he said. "That's one of the benefits of being a small company: You can move faster than your larger competitors. You can in the course of an afternoon decide to change the strategy of the company. And when that's what our gut told us to do, that's what we did."
Nelson said that Phurnace relied on free open-source software to speed development of its products and made signing paying customers an early priority. But about a year into the business, it became clear that it was targeting the wrong kind of customer.
"Our first target market was independent software vendors, who we thought would use our product to make their own software easier to install," Nelson said. "It turns out that was a really terrible market to go after. Software companies would rather build their own product than buy from someone like us. So we shifted our market to Fortune 1000 IT organizations that have to deal with hundreds of different applications coming to them."
"Our general philosophy has always been to not sit in a cave and pontificate and have everything perfect before we go to market, but instead to go to market quickly and be driven by the answers that the market tells us," Nelson said.
Phurnace raised $5 million in venture capital last year from S3 Ventures and DFJ Mercury to expand sales and marketing. The company, which has 16 employees, is on track to become profitable by year's end, Nelson said.
Phurnace's fundraising efforts also have been a learning experience, Nelson said, joking that the startup "has done every form of financing you can imagine, including giving plasma."
Its first infusion came from convertible debt through Lonestar CAPCO, which is a private investment firm backed by state tax dollars. Next, it raised money from angel investors including John Hime. That was followed by the venture money.
"When you have options in raising money, that's ideal. But a lot of times you don't have options, you have what's available, and it's not always what's best for your company," he said. "That has led us to turn down some money and led us to take money sometimes not at the best terms. In a way, the money you turn down defines you much more than the money you choose to accept."
Despite the tumultuous economy, Nelson said Phurnace is on track for growth in 2009, with revenue expected to increase 500 to 700 percent this year over last year. The company is able to sell its software in such a challenging environment because, Nelson said, "We're saving people money. They can see a return on investment in the very first quarter they make their investment. Right now, you've got to be able to show a quick return, real savings and productivity gains."
The reward for changing courses when the need dictated is that Phurnace is now on track, Nelson said.
"We feel like we finally figured it out. We've finally got the product right, we've got the market right, and we know the customer. Now it comes down to quarter-over-quarter sales execution. That's where we are, and it's a good place to be."
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Lori Hawkins covers startups and venture capital for the Statesman. Read her blog, Starting Up, at statesman.com. |