Last night at Microsoft N.E.R.D., Founder Collective hosted their third Founder Dialogues event. The series aims to share remarkable stories of founders who have built some of the most successful companies here in the Bay State. The first event was held in April, with founder Tim Healy telling his inspiring story of growing EnerNOC into the company it is today, and a second session in June featured Mick Mountz of Kiva Systems. Last night’s featured founder, Diane Hessan of Communispace, shared an equally moving story.
Communispace, which began as pure play software company, builds private online communities that help major brands gain insights from consumers. Eric Paley, Managing Partner at Founder Collective, introduced Hessan and shared some of her impressive Communispace stats: over 100 big-brand clients, $50 million in revenue, a projected 30% growth next year, 300 employees (270 of which are here in Mass.), and a 91% client retention rate.
Paley’s questions took the audience through Hessan’s upbringing, her early career, and the journey she’s taken with Communispace, building it from a small team with a base technology into what it is today. Along the way Hessan shared her thoughts on everything from getting MBAs (where she gave a major shoutout to Babson’s entrepreneurial education), work-life balance (she has two daughters, sits on the board of 17 companies, and volunteers constantly), working at multi-national corporations (where she realized she could always be replaced), and the importance of physical energy.
As for building Communispace, this founder’s story underscores the importance of a willingness to give up your idea after listening to your customers, and the benefits of building a company with people you love:
Hessan’s Background: From Small Town to Beantown
Growing up watching her father repair sewing machines at his small shop and her grandfather manage his own newspaper stand in the train station, Hessan said she was always drawn to running a business.
Her roots lie in the small town of Norristown, Penn., about twenty miles outside of Philadelphia. Only 40 of the 800 students in Hessan’s high school class of 800 went to college; she was one only two who left the state to do so, choosing to come to Tufts.
After running out of financial aid money at Tufts, Hessan saw two options at the time: be a secretary or move on to law school. After attending a panel of MBA students, she decided to apply to Harvard Business School. She was 20 years old, hand wrote her application completely in calligraphy, and was accepted.
Early Career: From Big Corporations to Building Something Amazing
After graduating, Hessan went on to work for General Foods in brand marketing, where she learned how critical it was to walk in customer’s shoes and began her lifelong commitment to “listening hard.” After realizing she did not want to work for a large company because she wanted to make more of a difference, she moved on to help build The Forum Corporation for for fifteen years into a $100 million business. While Hessan remarked she felt like she had twenty different jobs over the course of her time there that allowed her to be entrepreneurial, she still found herself “having the bug.” As many in the audience could relate, Hessan described instances where she would be in a room with a handful of top-tier colleagues and say, “wouldn’t it be great if we built something on our own?”
Hessan knew she wanted to build something special, and while she didn’t have an idea, she set out to find the right people with whom she could “build an amazing company.” At this point it was 1999 and the Internet boom was in full storm, with the 3 C’s driving investments: content, commerce, and community. And while community at this time basically centered around AOL chat rooms, Hessan envisioned community having serious relevance to business in terms of what was being talked about online.
With this context, Hessan found a team from Lotus that was working to build a software collaboration platform – one that was not about dropping files into a central repository and sharing with one another, but which would facilitate conversations and knowledge-sharing between employees. After a meeting where she rallied the team to “create something amazing,” Hessan was on her way in building Communispace.
Paley asked Hessan if the risk of moving on the idea was ever a question, to which she replied, “I had nothing growing up, so I knew I could go back to that. What was scary was not being able to achieve the dream.”
Building Communispace: Fundraising, a Customer-Driven Pivot, and Employee Sacrifice
Hessan’s fundraising story for Communispace is incredible. She sold a base version of the product which would allow employees to collaborate and share best practices in an online setting to Chase, Sara Lee and an IT services company. Chase had even written her a $60,000 check.
With legitimate interest in building out the base product but having no connections to the VC world in Boston, her lawyer introduced her to one of the “most ruthless” VCs in Boston. He told her to go into a meeting with him with “thick skin” and that she would come out with a better presentation to help her raise capital moving forward. Hessan walked into the meeting only to have him literally rip her pitch deck apart, slide by slide, for four hours. Afterwards, he told her to go home, fix everything they talked about, and come back the next morning to pitch again. She arrived the next morning, gave a killer pitch, and walked out with a $10.5 million term sheet.
That initial round of financing and first few clients did not make Communispace a success. As it turns out, no one was using the product. And no matter what they did to begin to engage with employees, they only grew from 7 to 14 users. With Hessan keeping in mind that perhaps her product was a “nice to have” instead of a “need to have,” what made Communispace the success it is today was a major pivot offered by one of her first clients – Hallmark.
The executive at Hallmark leveled with Hessan, sharing a concern that none of his employees would use the Communispace product. He went on to describe to Hessan how dead Hallmark would be if it did not branch out from greeting cards. What would be incredible, he offered, was to put actual customers, instead of employees, in the collaboration software to gain insights about what the market wanted from Hallmark. The lightbulb went off in Hessan’s head, and at the end of 2000, the Hallmark Idea Exchange for parents launched with 82 people on the site. Next week marks the 10-year anniversary of the Communispace/Hallmark client relationship.
Even with the success of Hallmark’s community, Communispace struggled with cash flow in its early years. Hessan shared one horror story of fraudulent employee contracts – literally half of their revenue’s worth at $1 million – where this particular sales person would use voice distortion software to pretend to be the client. After bringing her employees in the room and telling them the situation, her team came back the next day with a proposition to all cut their salaries in half to continue to build the company they loved so much.
Since then, Communispace has grown like a weed, raising a second round of capital in 2004 which allowed it to grow 93% the following year. And while many VCs declined to invest in that second round, Hessan nodded to many entrepreneurs in the audience, saying, “People who say no – keep them in your mind. It’s possible that someday all those people who turned you down are going to show up for some cocktail party and say ‘it just kills me that we didn’t invest.’”
On the Future of Communispace
Speaking to the future of Communispace, Hessan noted that the company are working towards “making a dent in the Universe,” and that $50 million in revenue isn’t enough to make that happen.
Paley pushed Hessan about going public or selling the company, whereby she remarked that at this point for her it is not about the money (she knows either way she’ll be well-off). Instead, it’s about building things – more precisely, building a company full of amazing people. Her goal is to have 100 CEOs come out of Communispace someday.
With those lofty goals in mind, thank you Founder Collective for hosting this series and to Diane Hessan for sharing an incredibly inspiring story to a room full of entrepreneurs.
