Frederic Kerrest Is Offering You $1 Trillion Worth of Entrepreneurial Advice

By Scott S. Smith | Friday, 20 May 2022 | Feature, Business, Interviews

Frederic Kerrest, co-founder of enterprise software company Okta, shares not only his lessons learned on the way to the top but the wisdom of his wide network of fellow startup stars.

Frederic Kerrest Found Unconventional Wisdom Beyond His MBA

Frederic Kerrest is the author of a book that might have more real-world guidance for entrepreneurs per page than any other: “Zero to IPO: Over $1 Trillion of Actionable Advice from the World's Most Successful Entrepreneurs.” It's also written and organized in a way that is easy to understand and implement.

Kerrest, the co-founder and COO of San Francisco-based enterprise software giant Okta, had some help in writing this from his friends, like Eric Yuan, co-founder and CEO of Zoom, and Amy Pressman, co-founder of Medallia, the customer and employee experience management platform (the $1 trillion figure is the valuation of all contributor companies as of Nov. 15, 2021).

"There are a lot of 'Big Idea' business books out there; I've read and appreciate them," Kerrest told Startup Savant. "When you're in the trenches though, you need the type of nitty-gritty tips I've included, which are gained from my own experience over the past two decades and from those who have been there." 

Kerrest earned an MBA from the MIT Sloan School of Management, where he graduated with an additional certificate in Entrepreneurship and Innovation, ran the MIT $100K Entrepreneurship Competition, and received the MIT Patrick J. McGovern, Jr. Entrepreneurship Award. 

He had worked at Salesforce and most there believed he had just taken time off for the extra education, but Kerrest was instead learning everything he could, including interning at a VC, so he could start his own company. He planned to create an online product that would enable parents to teach their kids how to save and invest money. He was taught the value of hard work and how to manage his personal budget by his father, who immigrated with $500 and went on to become CFO of six public companies. But as Kerrest discussed his plan with experts, they explained that trying to do online payments was fiendishly difficult at that time. 

Fortunately, he and Salesforce colleague Todd McKinnon foresaw a future in which business software would become mostly accessible online, while, at the time, most companies were still using CD-ROMs to install programs. But their original idea was to offer cloud-based versions of the system management tools they used for their on-premises servers. It turned out that what prospects actually wanted most was a way to manage employee access to the apps they were already using in the cloud. Okta pivoted.

Unfortunately, by July 2011, they discovered they were targeting companies that were too large to land contracts in a short time, and they missed their sales projections by 70%. They were also running out of money. One of their VCs, Ben Horowitz of Andreessen Horowitz, told Kerrest he needed to stop trying to do everything himself and hire an experienced vice president of enterprise sales. 

Okta acted on the recommendation and things began turning around the next year. The lesson that was reaffirmed by Kerrest's later experience: startups should hire for their core competencies and get help for everything else from expert providers, such as for accounting, HR, legal counsel, and marketing.

For the fiscal year ending January 31, 2022, Okta's revenue was $1.275 billion, growing more than 50% year-over-year.

Getting Ready for Takeoff

Kerrest approaches the life of the startup leader in the rough order in which the challenges tend to present themselves. It may be surprising to know that the average age of founders of companies that later become successful is 45, according to MIT professor Pierre Azoulay, so if you didn’t start a business right after high school, it's still not too late. 

Kerrest writes that since most startups fail, the traits needed to survive and thrive aren't inventive genius or the ability to see what will be hot in a decade. His list of what it takes to "work on nothing else for the next 5-10 years" includes the following:

• The ability to make decisions when all the data isn't in
• A knack for selling
• An interest in other people and eagerness to listen
• Capability to stay organized in the midst of fast-moving chaos
• Physical and mental energy
• The ability to inspire others to follow your lead
• Resilience in the face of constant adversity
• Self-confidence to bet on yourself no matter what others think
• The skill to recruit others to leave safe jobs to bet on your dream
• Fundraising talent
• Willingness to manage conflict among your team members
• Budget management and forecasting skills
• A talent for telling a compelling story about your company

Kerrest argues that founders should not worry about someone stealing their great idea. You need feedback to be sure you aren't jumping off a cliff, so share your vision with experts, techies with hands-on experience in the industry, and those who know the relevant regulatory field. Other entrepreneurs are too busy with their own ideas, they'd likely think yours isn't very good anyway, and no one else has the knowledge you do that makes you so passionate, he points out.

"I keep two posters on my office wall," Kerrest wrote. "One says, 'keep the main thing the main thing,’ staying fiercely focused on your most important priorities. The other reads, 'Nothing happens until you sell something because everything else depends on that.’"

One of the top priorities has to be managing cash flow: you can never depend on additional funding, whether you bootstrap or have angel investors, so once you start spending, you are lighting a fuse, and time is everything, he notes. Kerrest and Okta CEO McKinnon aimed high, pitching a couple of dozen top VC firms. None of them were interested. 

They were desperate and decided to ditch their formal presentation at their next opportunity to just tell a story about why their vision was so exciting. When they did, Andreessen and Horowitz wrote them a $500,000 check (but the prior prep did help, Kerrest notes). 

The secrets to an effective presentation, according to Illya Levtov, CEO of business intelligence platform Craft, are to paint a picture of an astonishing future the startup can create, use analogies about how other companies achieved success ("this is the Uber of…"), radiate excitement, avoid buzzwords, and urge prospects to talk to your customers.

Keep in mind that VCs are beholden to their own investors for an ROI that is healthy, even though most startups fail; so, if your product or service isn't 100% better than what is out there and you don't see your startup being 10-times larger in 10 years, they won't be interested, Kerrest says.

He points to four scripts that need to be mastered to succeed at pitching prospective funders: 

Elevator Pitch: 100 words or less that can be delivered within 30 seconds about what is so compelling right now about your idea, your team, or the market.

Executive Summary: A one- or two-page PDF you can attach to an email or a video (three minutes max) that has the big picture, the problem you're solving, the product or service you're creating, and short bios of the founders and key members of the team. Also include the total addressable market, competitors, the business model, and the amount of money you are aiming to raise.

Business Model: A spreadsheet with detailed financials projected for the next 24 months, including expenses, headcount, sales, and how long you believe the money you are raising will last. 

Pitch Deck: A maximum of 12 slides to cover vision, problem, market size/opportunity, product/service, business model, proof that you are getting traction, team, competition, financials, and the amount you are raising. If asked to send it, email the summary instead and say you'll bring it to a meeting.

Pressman provides tips for bootstrapping, including approaching prospective customers, using overseas developers, competing with the big companies by offering fascinating projects (new recruits often are given just grunt work), and hiring among women returning to work after having children, veterans about to leave the military, and spouses of international graduate students (who often have work permits).

Managing Early Growth Smartly

If you hope to sell to large enterprises, Kerrest says you need to understand that people buy from people and it's worth investing the time to build relationships with multiple contacts at each prospect for weeks, months, or even years. If she or he leaves, they might end up with another potential client.

Kerrest recounts making two visits to a relatively small company that was in Boston. When they signed up with Okta, their leaders said it wasn't that its product was so much better than the main competitor, it was because of the visits that built rapport, trust, and the belief they would get better service. 

Start by focusing on industries where your product is likely to have the most appeal or the most potential, even though it may have wide potential application. Approach the top three to five companies, since smaller ones will tend to follow what the large ones do. Find a champion within, someone who can see the same future you do. Don't over-promise what your product can do — win trust by saying you are still working on features clients request. But, be willing to stretch your products' capabilities by adapting them to client needs. 

"Pilots are a common step in the enterprise sales process… a short-term assessment to prove that it will work," wrote Kerrest. "New startup founders are often so eager to do these that they'll offer them for free. Don't do it...Unless the customer has skin in the game, the pilot will get sidelined for other, more urgent projects. If a customer pays, however, they'll start cranking. The person who signed the purchase order is on the line for the money."

And what if they say yes? Start with a mutual action plan, a written roadmap that details which departments have to sign off and what you need to provide them. Then schedule show backs, periodic presentations that show that the customer is getting the value you promised. Each contract with early customers should also have something that will help with other sales or fundraising: participation in a case study or video testimonial, agreement to take three to five reference calls, and three to five calls from the media or investors.

If you've never managed a sales team, Kerrest has some tips:

• Hire them in threes because sales reps are competitive and that will make them work harder and smarter. 
• Study their styles and you'll see what is most effective and how to set up internal management systems all reps can use.
• Be flexible with targets because it will take time to get up to speed with something new, so give them quotas for doing demos, getting in the door, or starting paid pilots.
• Hire a veteran who has the networks to get into the Fortune 2000 (to avoid paying top dollar, find one who is retired and willing to work part-time to open doors.

Okta keeps everyone on a measurable track with a system similar to the Silicon Valley favorite Objectives and Key Results, which it calls Vision, Methods, and Targets.

Other key issues:

Culture: Your core values need to be drafted by the founders, who must walk the talk. Okta's are: love our customers, never stop innovating, act with integrity, be transparent, empower our people.

Do Risk Right: Hire those with entrepreneurial mindsets, let your teams know you know what they're doing is risky, set guardrails, don't punish employees whose projects fail, make it fun, and learn in the process.

Leadership: Keep a running to-do list, focus on what is important and urgent, and keep emails, meetings, presentations, and phone calls short.

Manage Yourself: Hire great people and empower them so they don't need to get a decision from you 24/7. Take vacations, have hobbies, and most important, guard family time. 

Don't think you've gained your $1 trillion yet? You'll have to buy the book for $28 to get the other 200 pages and 100% of all profits go to BUILD.org and Hidden Genius Project.

About the Author

Scott S. Smith

Scott S. Smith has had over 2,000 articles and interviews published in nearly 200 media, including Los Angeles Magazine, American Airlines’ American Way, and Investor’s Business Daily. His interview subjects have included Bill Gates, Richard Branson, Meg Whitman, Reed Hastings, Howard Schultz, Larry Ellison, Kathy Ireland, and Quincy Jones.