Bootstrapping from Ukraine: bpm’online CEO Katherine Kostereva

Bootstrapping from Ukraine: bpm’online CEO Katherine Kostereva

This is a fascinating story of a Ukrainian entrepreneur bootstrapping her CRM Software company to global scale. We’re thrilled to bring you Katherine Kostereva’s inspiring and super intelligent entrepreneurial journey.

Sramana Mitra: Let’s get going. Where are you from? Where were you born and raised? Let’s go to the very beginning of your personal journey.

Katherine Kostereva: I was born in Ukraine. Since childhood, I’ve been traveling a lot and visited many countries worldwide. I graduated in 1999 with a Bachelors in Computer Science. Shortly after that, I got my MBA. Even from high school, I was obsessed with technology. I was thinking of the ways to transform business through technology. Technology has always attracted me.

Sramana Mitra: Where did you do your Bachelors and MBA.

Katherine Kostereva: I did it in international schools that have offices throughout Europe. I got my MBA through the International School of Management located in Kiev.

Sramana Mitra: After you finished your MBA, what was the next thing that you did?

Katherine Kostereva: I spent about two years working for IBM. I was working in Marketing and PR. That was an amazing experience. I traveled all over the world to the different offices of IBM. I started to work right after I graduated from high school. I was doing door-to-door selling of advertising for newspapers.

I did it when I was 16 to 20 years old. I met 10 new people everyday while trying to sell advertising. After I graduated from the university, I got much better experience in IBM. Frankly the first day of my career, I knew that I would go down the entrepreneurial path. That’s what I did in 2003.

Sramana Mitra: How long did you work at IBM?

Katherine Kostereva: About three years.

Sramana Mitra: What years were those?

Katherine Kostereva: From 2000 to 2003.

Sramana Mitra: Where were you located?

Katherine Kostereva: In Kiev, the Ukraine head office of IBM. I was part of the European marketing team of IBM.

Sramana Mitra: After that, what happens? What’s the next thing that happens when you leave IBM?

Katherine Kostereva: I had a friend who’s a developer. During one of our meetings, we just discussed the different opportunities in the market. I saw this huge demand for CRM. It was just simple stuff. You know how it was in the 90’s or early 2000’s. The ultimate goal of the enterprise was, at least, to store the history of customer interactions in one place because the core pain of businesses was losing all the information about the customer.

We saw this huge demand everywhere around. I had IT companies from Russia, Poland, and Germany who had this struggle. We decided to build a CRM system. I was absolutely fascinated by BPM technologies. I saw the value that BPM technologies could bring to the businesses. Then this idea emerged to combine BPM and build CRM on top of BPM. That’s our core differentiator. BPMOnline is now known as the BPM tool with CRM on top of it.

Sramana Mitra: Tell me a little bit about you and how this came about. You’re saying that you experienced demand from different countries for CRM. This was 2003?

Katherine Kostereva: Yes.

Sramana Mitra: How did you get this off the ground?

Katherine Kostereva: It was just the two of us – myself and my partner. We bootstrapped the company. Especially in Ukraine, there were no venture capitalists. This industry just didn’t exist in Eastern Europe. Almost everyone was bootstrapping. Today, the company has 700 people on board. The question is how we grew from two founders to 700 people on board today. My friend was a developer. I left my job. He started to develop the product. I did the rest.

I’ve been testing the product, developing the website, and developing the collaterals. The first version was very primitive. It wasn’t even not a web version. It was a client-server version. It had functionalities to work with a contact, work with accounts, and manage opportunities-based BPM engine. I started to sell this first version. I had this great experience from the newspaper. I did, more or less, the same with our product. I started from Ukraine. Immediately, we started to get leads from all over the country because we built it in both Russian and in English.

We started to get leads from all over Europe. I called them and started to sell. In a few months, we had five to seven people on board. Interesting thing is that from the first day, the company has been profitable. It didn’t require a lot of investment. We built our first version of the product. Then my partner continued to develop the product. I started to acquire new customers. We started to get revenues. We reinvested all the profits that we had. During the first year, we worked without any salary.

Sramana Mitra: When you said you were getting customers, help us understand how you were charging these customers? How were they paying you?

Katherine Kostereva: For licenses of course. That was an old-fashioned way of selling onsite licenses. We sold on site licenses for this product and technical support. That’s how we started to generate revenue.

Sramana Mitra: Do you remember what price point you were selling at? What was the average deal size?

Katherine Kostereva: The price of the license was about $10 per month. It’s about $120 per year. That was the price for one license. That was not a cheap price for that market because, remember, we are talking about the Eastern European market. That product was not cheap, but still the demand was huge. Although Microsoft, Siebel, and Salesforce were dominating the American market at this time, in Eastern Europe, those products were not introduced. Everyone needed a CRM system.

Sramana Mitra: How many of these were you able to get in the first year?

Katherine Kostereva: After our first release, I had five customers. That was in the first month.

Sramana Mitra: How did it ramp?

Katherine Kostereva: Starting from this point, it has been growing each month. I believe that part of our success is that everything we earn, we literally reinvest it into people. We hire developers, testers, architects, and sales people. Everything we earn each month, we invest into hiring new people.

Sramana Mitra: What did you need to do in terms of sales and marketing? Precisely, what were the hires assigned to do?

Katherine Kostereva: Since the beginning of the company, we invested heavily into both inbound and outbound marketing. We always had sales development. In 2003, we managed to do it just through cold calls. It doesn’t work nowadays. We use completely different tools for the outbound campaigns. When we started, I was making cold calls as well.

Sramana Mitra: You were actually calling people to sell $10 a month solution.

Katherine Kostereva: I was calling people to find the opportunity, then I’d visiting people to sell them the product for as many users as they have. One of my first customers during the first month was an advertising agency. They had 70 people on board. For me that was a huge deal because I earned close to $10,000 in the first month. We sold license per user.

Sramana Mitra: These five customers that you got the first month, can you talk about the deal sizes?

Katherine Kostereva: Our approximate deal size during the first year was from $5,000 to $10,000 per deal. Our revenue during the first year of operations was about $200,000.

Sramana Mitra: When you were closing these $5,000 to $10,000 deals, were they paying on a monthly basis?

Katherine Kostereva: No, lump sum.

Sramana Mitra: That’s very good because that’s really helpful from a cash flow point of view.

Katherine Kostereva: Right. Absolutely.

Sramana Mitra: $200,000 in the first year. This is 2003 or 2004?

Katherine Kostereva: 2003. This is our first year.

Sramana Mitra: Then what happens after that?

Katherine Kostereva: During the first few years of the company, we were doubling revenue. This is our 14th year. We didn’t have a single year without growth, even when we had market issues and even some war issues in Eastern Europe. The growth rates were different. In the first year, it was 2.5x. Then we doubled for several years and a bit less the succeeding years but not lower than 30%.

Sramana Mitra: During the years that you were growing, what was the primary customer acquisition strategy? Did that remain this kind of calling and visiting mode?

Katherine Kostereva: I split the lifecycle of BPMOnline into two parts. The first part is until January 2015. That was our first part of growth. We’ve been growing in our domestic market because the company, during this period, was growing fast but it was growing within our local geographic markets. No one knew the brand of BPMOnline in the United States or in Australia.

Geographically, we were focused on our domestic market. In this domestic market, as we are the first few CRM market evangelists, we did a huge job related to the evangelist’s job like spreading the word on CRM. Everyone knows us in the market. It’s a huge brand locally. We heard feedback from our customers and partners who had offices in America and Asia. They asked why we’re not expanding the business outside of Europe.

Sramana Mitra: We need to go from 2004 to 2015. In the context of what happened as you were growing within Europe, were you following the customer acquisition strategy using cold calling?

Katherine Kostereva: Yes, for outbound marketing and inbound marketing as well.

Sramana Mitra: Specifically, what marketing strategies worked for you that helped you generate the right leads? Is Russian language software a big deal for your customer base?

Katherine Kostereva: Our primary marketing channel was outbound campaigns.

Sramana Mitra: Outbound campaigns directed towards Russian companies?

Katherine Kostereva: Not just Russian companies. Russian companies and Eastern European companies.

Sramana Mitra: I guess the question that I’m getting to the heart of is, is Russian language software a big deal in your success?

Katherine Kostereva: Yes, it is.

Sramana Mitra: What percentage of your customer base is Russian?

Katherine Kostereva: It’s quite huge. It’s not in my head but it’s a big percentage. In Russia, there are huge enterprises who are BPMOnline customers. For example, the fifth largest search engine in the world is a customer. Yandex is a huge customer for CRM. All CRM-related processes in Yandex are automated by BPMOnline. The other examples are enterprises that are huge in Russia. They are included in Forbes 2000 with tens of thousands of users of BPMOnline. Those enterprises came from Russia and heavily use BPMOnline for different processes.

Sramana Mitra: Your outbound marketing strategy, heavily, targeted these Russian language enterprises that would be buying BPMOnline because of your Russian language specialization in CRM.

Katherine Kostereva: From one side, yes. From the other side, it was the Baltic region. Baltic countries like Latvia, Lithuania, Estonia are also big customers for us. On the other side, countries in the Asian region like Kazakhstan and Arab Emirates. This region is also very big for us.

Sramana Mitra: Is there a language issue there in the Baltic region?

Katherine Kostereva: They all speak Latvian, Lithuanian, or English.

Sramana Mitra: What language software were you selling in that region? Do you have localization?

Katherine Kostereva: If it’s Latvia, we’ll install Latvian. If it’s Lithuania, we install Lithuanian. We have partners in all of these regions from the beginning. They provide us localization.

Sramana Mitra: The whole language-driven differentiation was a big deal in your success in the beginning?

Katherine Kostereva: I would not say so. For example, if we take Microsoft, it has always been very aggressive in this region. It’s a huge player. It’s our big competitor in this region. When we started to penetrate large enterprises like Yandex, Microsoft was doing the same because they had very strong representative offices. They had very strong partners. They localized their system into the Russian language.

Sramana Mitra: When it came to a head-to-head with Microsoft, how did you win?

Katherine Kostereva: I win against Microsoft now in America as well. First, what is the differentiator. The differentiator of BPMOnline is that it is built on BPM platform. Even mid-size companies who value Business Process Management as the core of CRM application see this value. I would say that any strong company will value this engine below CRM functionality. They, obviously, prefer BPMOnline.

We provide the agility to our customers to change processes in CRM faster than any CRM solution. Why we’re winning deals from Microsoft and Salesforce today is because of our BPM engine. Let’s put it into two parts. To be successful, we need great technologies and need great sales and marketing. Talking about technologies, BPMOnline has been especially strong for a long period of time. I first showed our product in 2011 to Paul Greenberg. People call him the “Godfather of CRM”. He had a competition among CRM vendors from different regions not including big brand names. We won this competition.

He couldn’t believe that technologies like that are not known in the American market. The whole story about BPMOnline is that, from the technological point of view, the product had been exceptionally strong many years ago. From the marketing and sales point of view, we did a huge mistake. I want to share this mistake with you. We started the global expansion to the American, Australian, and Asia-Pacific market just two years ago. Technologically, we were ready to do this step much earlier. That was my, let’s call it, entrepreneurial mistake.

When we get the opportunity and we compete against Microsoft and Salesforce, we win the deals. If you have a look at the Gartner Magic Quadrant of Forester, you will see that BPMOnline has the highest overall score. We have only two competitors on the global market who have beaten BPMOnline. Those are Microsoft and Salesforce. Those are two vendors who are higher than BPMOnline in CRM in Forester.

Sramana Mitra: You’ve basically differentiation from a product point of view by building your CRM system on top of a BPM engine. A company that wants to do BPM and CRM on the same platform chooses you over Microsoft and Salesforce.

Katherine Kostereva: Absolutely. From the other side, the interface of the product is very light. People will just fall in love with it when they see the product. Of course, it’s very subjective. Interfaces have always been subjective. It’s subject to somebody’s tastes. Still, we do invest in our UI and UX. We have three products: marketing, sales, and service. These are all on a single platform. This is something different.

For example, Microsoft have been acquiring products from other vendors and integrating one with each other. In our case, we built marketing, sales, and service on a single platform. The product is one platform with different modules. The administration system, BPM part of the product, and mobile apps are all one application. If the customer needs just the services part, they can buy just services. If they buy all three, they will not get all three products integrated. They will get three products on one platform. That’s the other huge differentiator on the market right now.

Sramana Mitra: Talk to me about organic growth versus financing. Is all the growth that you’ve achieved so far organic?

Katherine Kostereva: It’s all organic. We never took loans and we never had investors. The approach is very simple. We reinvest everything we earn into our business. Nowadays, we have 700 people on board in six offices globally. You can roughly split those 700 people into two parts. One half is R&D and technical support. The other half is marketing and sales.

Sramana Mitra: What percentage of this is in Ukraine?

Katherine Kostereva: R&D is almost 100% in Ukraine. We have several people in different locations to support our customers. It’s split for sales and marketing. For example, I work in our Boston office because I’m leading the expansion into the American market. We are heavily investing in our Australian office right now. That was quite a surprise for us because Asia-Pacific and Australian markets started to grow very fast in our portfolio. Frankly, we didn’t expect this growth.

Sramana Mitra: Which Asian market is responding particularly well?

Katherine Kostereva: We have our office in Singapore. When I’m talking about the customer base, I’m talking about Singapore and Malaysia. Number one is Australia.

Sramana Mitra: What level of revenue did you get to before you made the choice to enter the United States?

Katherine Kostereva: Dozens of millions.

Sramana Mitra: Dozens can be $60 million or $24 million.

Katherine Kostereva: We are a private company.

Sramana Mitra: That’s fine. You can give me a range.

Katherine Kostereva: When we started, it was below $50 million. When we decided to go globally, it was below $50 million.

Sramana Mitra: It sounds like you’re still following the outbound marketing strategy.

Katherine Kostereva: Not globally. That’s what I was trying to tell you. The history of the company is split into two parts. The first one is the domestic part and the other is global. Your question was how have we been growing domestically for 10 years. That was outbound. When we started to grow globally, we completely changed our strategy. Our strategy right now is completely different.

We have two vectors to penetrate the market. Our core strategic vector is partner-driven strategy. Our product is particularly good for implementation. Consulting companies who take this BPM engine can change everything in the product – any logic, any process. It’s a platform. It’s 100% customizable by the partner’s analyst. They take the product. They go to the company and they earn quite a lot from professional services. Our product is very good for distribution through system integrators. We do account-based marketing in relation to those integrators. The full list of the integrators that we are targeting is close to 3,000 companies. At a given period of time, we target just 100 companies.

Katherine Kostereva: We do account-based marketing campaigns around those companies. As soon as we acquire the partner, we do onboarding processes. We invest in onboarding the partner and have them start developing the market. In some regions, we have unbelievable success. In South Africa, we have a partner who’s bringing several customers every month. Our direct sales force is doing nothing to get those customers. We just support our partner to do the job. That’s our channel number one.

To summarize, we do account-based marketing targeting system integrators. Those system integrators get into their existing customer base selling BPMOnline. The second vector is classical inbound marketing. We do lots of educational content. Every week on our website in the Insights sections, our prospects and customers can find new white papers or research. We use this heavily to share with our community and to attract leads. We use LinkedIn, especially CRM professional groups. This educational content generates quite a lot of leads. The number of marketing-qualified leads monthly nowadays is 10,000.

Sramana Mitra: Wow, great! How many people do you have in the US?

Katherine Kostereva: We have 20 people. The majority of those are in sales.

Sramana Mitra: Have you crossed to $50 million at this point?

Katherine Kostereva: Close.

Sramana Mitra: That’s fabulous. You’ve been able to get to close to $50 million in revenue starting from Ukraine and now you have a global business, that’s awesome.

Katherine Kostereva: If we didn’t have this revenue, we couldn’t have 700 people and huge R&D to develop our technologies and to get into the Gartner Quadrant. Thank you very much for your kind words.

Sramana Mitra: What do you want to do? Do you want to take this company public or sell it? What is your ambition?

Katherine Kostereva: We want to grow. My challenge right now is that the technology is so great. As an entrepreneur, I feel that it is my mistake that I didn’t go global earlier because with the technologies I have in hand right now, I could have had 10 times higher revenue that I have now. When I first met Paul Greenberg and he saw our technologies, it was quite a big PR.

He even traveled to Ukraine. After all this competition, we have such warm relations and correspondence. I invite him to travel to Ukraine. He was somewhere close and he visited Ukraine. He was telling me, “Why are you not in the United States?” It’s only now that I realize how big a mistake it was.

Sramana Mitra: Excellent. I am really thrilled that we had a chance to talk. Thank you for your time.


Author – Sramana Mitra.

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