Okta Co-Founder: Lessons In Creating A $13 Billion Juggernaut

Okta, which operates a cloud platform for identity management, announced another standout quarterly report this week. Revenues jumped by 50% to $125.2 million and cash flows came to $21.3 million. The company also added 450 new customers, for a total of over 6,550.

On the news, Okta stock rose by 6% to $113, putting the market cap at close to $13 billion. Keep in mind that – since the company came public in April 2017 – the return for investors has been a sizzling 566%.

So why all the success? What are some of the lessons here? Well, I had a chance to talk to the co-founder and COO, Frederic Kerrest, to get some answers. Interestingly enough, when he is not running Okta, he spends time helping out early-stage companies, such as through the MIT Trust Center for Entrepreneurship and Stanford StartX Accelerator programs. Frederic also has a popular podcast, called Zero to IPO, where he has interviewed tech veterans like Marc Andreessen, Aaron Levie and Patty McCord.

As for Okta, Frederic started the company, along with Todd McKinnon, during the depths of the financial crisis in 2009. Before this, both were employees at Salesforce.com where they saw first-hand the megatrend of the cloud and how it would transform the market for enterprise software.

But Frederic and McKinnon did not rush to create a product. The first step was to identify a painful customer problem. “I spent time talking to many potential customers,” said Frederic. “I didn’t want to invent a product in an ivory tower.”

At first, he had basic wireframes of the app and then as he got more feedback, he developed static html pages. During the process, Frederic would focus on asking open-ended questions so as to understand the broad customer challenges, not just a looking for features or point solutions.

The end result: Okta would help solve the problem that customers were having with adopting, managing and securing the growing number of cloud apps.

At this stage, there was the temptation to offer a free pilot. But Frederic resisted this strategy. “If you give away a product,” he said, “there is a perception of a lack of value. But when you get a check from a customer, this shows commitment and starts real conversations. It may feel uncomfortable asking for money when you have an early-stage product but I think you need to.”

Yes, the timing for Okta was spot-on. But the company would need to find a way to scale the business. “At Salesforce.com,” said Frederic, “I learned the importance of establishing a strong culture from day one, which allowed for the rapid growth.”

Let’s face it, as a company gets larger, the founders will not be involved in most of the decisions. So the culture will be essential in guiding the workforce in the right direction.

For Okta, a key principle was focusing on the success of the customer. A big part of this was using the SaaS model that requires a strong value proposition (if not, there will be churn). And of course, there was constant innovation.

“When you have a great product and service,” said Frederic, “your customers become your marketing.” Take a look at the testimonial page for Okta, which is chock-full of customer videos.

OK then, but isn’t today’s market different than it was when Okta first started? This is true. Yet the market for enterprise cloud solutions still appears to be in the early innings.

On the Okta earnings call, CEO Todd McKinnon noted: “The market tailwinds contributing to our momentum are the rapid growth of cloud and hybrid IT, digital transformation and security.”

Consider that — according to Gartner — total IT spending came to about $3.77 trillion last year but the cloud computing segment represented only about $214 billion. In other words, there is still enormous opportunity for entrepreneurs.

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