Big Data and Multi-Billion Dollar Success: The Incredible Rise of Tableau Software
It all started with a brilliant idea. Two Stanford scientists Professor Pat Hanrahan and his Ph.D. student Chris Stolte wanted to fuse computer graphics with the world of databases to put data visualization in the hands of everyone. In other words, to make data look sexy.
The project caught the attention of entrepreneur Christian Chabot who was at Stanford Business School. He immediately saw its potential and teamed up with the academics to form a company to bring their idea to life.
Stolte and Hanrahan (who was also a founding member of Pixar Animation Studios and had won three Academy Awards for computer graphics in movies) worked on the technology while Chabot became the CEO.
Tableau Software was born in 2003 and was built on a pioneering programming language, VizQL, that Stolte and Hanrahan developed. The company launched in the aftermath of the dot.com bubble when the internet sector went into freefall as one company after another imploded. The stock market wasn’t in a great shape either, hitting a five-year low. It was not a great time for startups.
However, the trio was not looking for funding and avoided venture capital at all costs during their early days. They were skeptical of investors and wanted to retain as much control of the business as they could. So they bootstrapped it from day one.
Bootstrapping the Business
Each of the founding members contributed a few thousand dollars to get the business up and running and adopted a more modest lifestyle to support it. For example, Chabot canceled his newspaper and magazine subscriptions and downsized his apartment. They also worked for free.
"The hardest thing you have to do when you bootstrap is to work for free," Chabot told Forbes. "There's no income. It's not that you have to be cutting big checks necessarily – there's just no income. So you have to be able to adjust your lifestyle for some period of time, maybe a year or year-and-a-half."
Tableau's first office was Chabot's bedroom. The second was his basement, and the third was located in a low-rent commercial building.
Customers Before Capital
The company's guiding philosophy at the start was 'raise customers before raising capital'. They wanted to start selling the product as soon as possible.
The trio was convinced it could offer the business market something revolutionary, an accessible and exciting alternative to the pain and frustration of data and spreadsheets. However, it was not the easiest sell in the world. They had to convince people who were not data experts that Tableau could make their professional and personal lives better. They were marketing a new kind of visual analytics software to an audience who didn't know they needed it.
Tableau found it challenging to put everything into words, so Chabot drove around Silicon Valley with his laptop and a software demo to try and sell the idea. But nobody wanted to listen. It was an inauspicious start and not the one they wanted.
At that time, IT departments controlled all their respective company's data, supplying reports to business units when they were published. Chabot could not overcome this sales barrier, but he would not be beaten. He took a courageous step and bypassed the IT departments to sell directly to the marketing and sales departments. This approach was almost unheard of.
A possible disadvantage that could’ve held Tableau back was the product wasn't quite market-ready. However, as far as Chabot is concerned, many companies wait too long before trying to sell what they have. In his words, they use several common excuses such as "We're still building it," and "We haven't tested it." This was not going to be his approach.
Tableau was honest with prospects, disclosing that it hadn't been thoroughly tested and was missing a few basic features. However, it was capable of doing things that could really help businesses.
To get traction, the company offered a few free trial downloads and developed and launched Tableau Pacific, a free cloud-based version of Tableau. They worked with customers to gather more insights and improve their offering. Freemium versions turned into paid accounts, and eventually, entire organizations signed up. Tableau was on its way.
The software's user-friendliness and attractive colors appealed to potential customers who had endured years of dry reports and difficult to understand data. With interactive charts and dashboards, data was comprehensible like never before. The difference was like the dramatic shift from black and white to technicolor in the classic movie The Wizard of Oz. It was an exciting new world for data and visuals.
The company hired its first employee during the second year of bootstrapping. They made sure they brought on someone who was excited about Tableau's vision to "help people see and understand data" and the thrill of building something new. During the early days, their hiring practice helped them build a crack team passionate about the startup and its potential to transform the future of work.
Tableau began to grow, and eventually, it did accept Series A funding of $ 5 million in 2004, but not after it had a reliable product, customers and a positive cash flow. A further funding round in 2008 secured $10 million. The money raised by venture capital was left sitting in the bank, there in case of emergency. More customers came on board, and revenue grew each year. In 2004 the company earned $800,000 which rose to $2.1 million in 2005, $3.7 million in 2006 and $7.8 million in 2007.
When the 2008 economic crash hit, the company was still in startup mode and saw interest in its software soar as organizations looked for data analysis tools to manage efficiencies. The revenue in that year was $13.9 million and $20.1 million in 2009. And it kept going up.
Revenue was $34.2 million in 2010 and $62.4 million in 2011. In December 2012, the company broke through the $100 million revenue milestone ($127.7 million), and they did it without spending a single cent of venture capital. Between 2009 and 2016, sales grew at an average annual pace of 82%.
In May 2013, Tableau went public, raising over $250 million at a $2 billion valuation. Chabot said the aim was not to raise money but to increase awareness of the company. The move made the three founders multimillionaires overnight, and they retained control of approximately 48% of the business.
"The most successful software companies are those where the founders retained control," he told one interviewer.
As the company grew, it turned its attention to expansion overseas. It had started selling internationally in 2010, and staff from its Seattle base were invited to move to foreign offices, including Tokyo and Frankfurt. The move presented several challenges, such as scheduling meetings that accommodate diverse time zones, difficulty sustaining the same management practices at home and abroad and foreign-language support.
To ensure international expansion would be a success, Chabot took an unusual step for a CEO and relocated abroad to London. He stayed for a year to grow regional sales as the company went after a share of Europe's significant business intelligence market.
His time in the UK was also a valuable learning experience that he fed back into the company. For example, before leaving for London, he didn't fully understand the difficulties faced by international employees who worked for US-based firms. Many felt disconnected and not taken seriously by those at the home office. By relocating, he sent a clear message that employees outside of the United States were essential, and he encouraged other executives to spend time at international offices.
Tableau was soaring, but as with many companies that fly high, it hit a bit of turbulence. The fourth-quarter license revenue in 2016, which is a key indicator of new business, grew 31% year over year. While many enterprises would be happy with such a percentage, not so Tableau, which had been enjoying a rocket speed trajectory.
To make matters worse, figures revealed it had lost $84 million the previous year, after five years of consecutive profits. Shareholders were jittery and sold their stock en masse, sending shares plummeting by 50%. Overnight $3 billion was wiped off the company's value.
Shares were trading at near-record lows, and the marketplace was getting ever more competitive with rivals catching up on Tableau's features and undercutting its prices. Things were not looking good.
New Blood and New Direction
The troubles continued, and so it was decided to make a change at the top. Chabot relinquished day-to-day leadership, and Adam Selipsky, an Amazon veteran, took the CEO reins. The company's founders retained their positions on the board with Chabot as chairman.
Selipsky concentrated on getting Tableau back on track. Soon after he joined, the enterprise made the switch to subscription-based products and upped its innovation game. Within a year, the stock price was up 15%, and revenue was $250 million, up 24% year-on-year. Growth continued, and by 2019, it hit $841 million in annual recurring revenue, up 41% on the previous year. It was an incredible turnaround.
That same year, Tableau was acquired by Salesforce.com in a $15.7 billion deal.
Chabot, Hanrahan and Stolte built a wildly successful company from scratch with a product that revolutionized the way people use data, making it visual and easy to manipulate. By bootstrapping initially, they retained full control over the business and waited until it was ready before going public. A key element of their success has been going after customers, from before the product was ready to international expansion and transitioning to a subscription-based service. It's been a long journey and one that's culminated in a business empire that spans the globe.