His first go at a startup ended with his advisor turning to him to say “so you’ve spent half a million dollars and you have nothing to show for it…”
When Computer Business Review sat down with Ilya Volodarsky, the co-founder of customer data “unicorn” Segment this week, he had just finished talking to a range of London-based startups and urging them not to make the same mistake.
His next effort, Segment – founded by Volodarksy and fellow MIT undergrads, Peter Reinhardt and Calvin French-Owen – has grown rapidly and can now name a customer base of over 19,000 companies, including Levis and Atlassian.
Having just raised $175 (£155 million) million in a Series D funding round that valued Segment at $1.5 billion here, it is fair to say that this time he does have something to show for it. So what does Segment do, exactly, and why is it so happy about GDPR?
Customer Data is King
With customer touch-points with companies growing, organisations are amassing a ton of data from daily interactions. However, as Volodarsky notes: “Customer data is kind of spread all over the place.”
At its heart, what Segment does is take all of the customer data that its clients have gathered across multiple touch-points, and then integrate it into an array of tools like CRM, analytics tools, marketing or customer success indicators.
(Segment offers its users around 250 tools they can choose to use on their data – all without having to write any code.)
The challenge it addresses first is joining up all of the different disjointed pieces of data that can come in from a myriad of sources. For instance a customer may interact with a large retail business through a bricks-and-mortar store, in which a POS system logs data; they might view or purchase products via the website or mobile application; call customer support or talk for an hour with a sales person…
Segment brings all of these data collection points into the one stream so that the data can be properly analysed or even just used to give that customer a highly personalised contextual answer that takes into account all of their previous interactions with the organisation: “We basically help the company install this common infrastructure, so they can get first-party data from their website, mobile apps and so on straight into their end tools. It frees up their engineers so they can work on the core product, instead of having to build and maintain all these data pipelines,” Volodarsky states.
GDPR is An Advantage
“So we love GDPR.”
“The basic rights of being able to know what your data is, being able to audit it, being able to delete it [is really important],” Volodarsky notes. And not just for consumers. Since Segment’s main offering is to collect and organise all of the data a company collects about its customers, a tool it offers to help them manage GDPR-driven customer data deletion has been more popular than expected, he says.
(The company has built a specific product to automate user deletion and suppression of new data. As the Segment team explained in a recent blog: “We wanted to make it easier for companies to comply with the GDPR not only by deleting data in Segment, but also by having us federate those deletion requests to the other SaaS tools our customers might be using.”)
Volodarksy tells Computer Business Review. “So GDPR was actually a boost to our business because we helped companies get more compliant…it’s like one of our four biggest selling points.”
The company has since helped partners delete nearly seven million users’ data; a number that it admits it found surprisingly high.
Segment Company growth
The company is expanding rapidly: last year it opened a European headquarters in Dublin, an office in Sydney and one in Vancouver. Its recently raised funds will be used to increase its global expansion so it is better supported in APAC and EMEA.
The Segment team is also working on new products and APIs to add to the company’s already long list of tools. Yet one thing seems to really excite Volodarsky, and that’s the startup incubator he launched three months ago.
He recalls when he was reading a research paper from CB Insights that found that 42 percent of startups fail because they have created something that has no actual market demand. (Really).
While 20 percent of startups failed because they burnt through the cash too fast.
It reminded him of his own first foray into setting up a business, when he designed a tool for university students attending lectures. If the students were getting confused by the professor’s lecture they could press a button on their laptop; this would create a measurement of confusion in the class that the professor could see, and the idea was he would slow down and explain. When they ran the first test, students whipped out their laptops and rather than open the tool, they of course logged into social media or some other distraction. Human behaviour is often the death of a good idea.
Yet he believes that the use of good data practices early on can mitigate issues.
“A quarter of founders know how to use analytics and use methodologies and 75 percent don’t. It’s a really big problem. And you can see it in the numbers of failures. There’s just so much money and innovation and smart people’s time that gets wasted because they don’t have a good methodology around product market fit and they don’t know how to use data to prove to themselves that they product market fit,” he notes
As a result, Segment started a programme to educate people how to use data to avoid the same mistake they made when they first tried to create a product. “We go round to early stage startups and we tell them not to make that same mistake and you know waste half a million dollars over two years.”
In the last 13 weeks Volodarsky’s team has engaged with 2,000 startups as part of the programme. These founders are shown how to build a methodology that not only outlines the steps they need to take in business, but also sets up good data collection practices. As he puts it: “I don’t think you can be successful and grow a company if you’re not looking at data in a company. I think it should be the higher level operating model.”
While they are helping these startups to grow by giving them methodology training and a year’s free Segment use, there’s something in this altruism for Segment too.
“One of our major acquisition channels is organic referrals”, he notes. And maybe one of these startups will be the next unicorn and a major Segment user: it’s the long-game.
Sitting down to talk in London you get the genuine sense he wants these companies to succeed and avoid any mistakes he made; it’s just an added bonus that they could become a client.