How the Parsons Built a Business That Helps Other Entrepreneurs

How the Parsons Built a Business That Helps Other Entrepreneurs

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Sabrina and Noah Parsons founded two successful companies together before Palo Alto Software acquired one 14 years ago. Now, Sabrina is the CEO of Palo Alto Software, where she’s been instrumental in the company’s expansion and launch of its LivePlan business planning software that helps small business owners strategically plan for their own business growth.

She tells us about her experience as a small business owner, as well as the insights she’s gained from mentoring other burgeoning entrepreneurs.

Becoming an Entrepreneur

I graduated from Princeton University in 1996. I was from the Bay Area, and after graduation I wanted to go back. It was just when the first dot-com boom was starting. I got involved in startups and was excited to be in the Silicon Valley as this new wave of technology was beginning. That’s where I got bit by the entrepreneurial bug. I did a couple of not-so-well-known tech startups and then helped found Epinions.com.

I was at Epinions for a couple of years and then started my own internet consulting business with my husband called Lighting Out. He had been at Yahoo, starting in 1996. He was the 101st employee at Yahoo. We helped other companies that were trying to understand how the Web would impact their business. We were consulting on things like online marketing, strategic partnerships, and e-commerce usability.

We did Lighting Out for a couple of years and then decided to move to London. My husband is a dual citizen and we wanted to explore the world a little bit. We ended up starting a software distribution company in the UK, which worked with U.S. companies to distribute small business software.

We started distributing Palo Alto Software products in the UK and ended up building a UK presence for Palo Alto Software. To this day, we still have a wholly owned subsidiary in the UK, which is the business my husband and I started.

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Funding the Business

When we started our consulting business, we self-funded it. Being that it was a service business, it was a lot easier to self-fund, since there’s not a whole lot of capital expense and you can start making money right away if you have expertise.

Our consulting business grew very quickly, so we were able to save money, which is what we used to move to London and start the business in London. We definitely needed seed funding for that.

As a software distribution firm, we needed a bigger presence and we opened a fulfillment and distribution center in Ireland. We really planned and waited until we had enough money in the bank in order to finance that business.

When we started the consulting business, we initially started with our own credit. Both of us have always been good with personal finance, so we were very quickly able to get a business credit card and a business bank account.

When we moved to London, it was a whole different ball of wax to start a business as foreign nationals in a new country. We had money in our savings to finance the business and didn’t actually get business credit for that business for the first year.

We used some of the credit we had from our consulting business for the software business. We kept that business open and did a little bit of consulting in the UK, which helped us as we got established and built up credit in the UK.

The Challenges of Running the Business

One of the most challenging things for our business is growing the company on the people side. The people side takes a lot of effort – recruiting the people and making sure that you’re really cognizant of the culture you want to build.

One thing I didn’t realize before I was running a company with a lot of people is that if you’re not really purposeful about your culture, it’s going to be a culture that’s created from a void. You need to lead what values and morals you want in your company and how you want your people behaving.

Managing Cash Flow and Growth

The approach we take to manage Palo Alto Software is part of why we built LivePlan. Our methodology is built into the LivePlan product. Palo Alto Software is, and has been since I took over as CEO in 2007, cash-flow positive and profitable.

Our approach to cash flow management focuses around being really disciplined when it comes to strategic forecasting and understanding our cash flow levers. We also understand our inventory and the liabilities behind holding inventory. We are in big box retail stores with some of our software, so there are some accounts receivable issues there.

If you want to build a business and not put yourself in jeopardy of having to do layoffs, you just have to be really careful of your cash runway and how you add headcount and how you make decisions about expenses in order to always run an organization that’s cash-flow positive and profitable. We do have a credit line just in case, but have never used it since 2007.

The Biggest Mistake in the First Years

When we first started building our LivePlan product, we had been a software company that primarily developed Windows software. LivePlan is Software as a Service (SaaS) in the cloud. It became very clear when we started building that we needed a new development team that knew how to build SaaS and hosted products. What wasn’t clear was that, on the marketing side, we needed a different way to market a new SaaS product.

When we launched LivePlan, SaaS and subscription-based models were new for small businesses. Marketing a subscription revenue model is a different ball of wax. We didn’t realize that we needed some different skill sets and probably some new hires in our online marketing team.

We should have done a better evaluation of our resources. It was a good learning experience. Had we been more purposeful, we could have potentially done better training of our existing employees to get over that chasm of what they had been doing and what they needed to do. That’s why I say it’s always important to look at the big picture when you’re launching something new.

The Smartest Decision in the First Years

We’ve always focused on running a business profitably and cash-flow positive and bootstrapped it. I’ve seen a lot of friends who have had a lot of struggles as they’ve tried to raise money. Angel and VC money is glamorous, but it’s not very easy to get. I’ve seen a lot of people lose their business because they’ve spent so much time, energy, and money trying to raise VC financing, that they didn’t actually have the time to run the business.

You’re raising money and making revenue projections, which means you have to make that revenue. Once you put your forecast out there and you pitch your investors, you can’t not make your numbers, or they won’t invest in you.

In my perspective, even though it means you have to grow a little bit more slowly and you have to be more purposeful and understand your numbers, bootstrapping and running the business the way we’ve run it has allowed me a lot of flexibility, and it’s allowed me to focus on the strategy rather than having to run the business and raise money, which are really two full-time jobs.

The Most Rewarding Thing About Owning a Business

Seeing the company grow and hearing from our customers how the product has changed their lives is really rewarding. Knowing that our customers are better off after purchasing our products than they were before, I think that’s really rewarding.

From a management point of view, I really love the culture we have created. As a woman CEO of a tech company, 30% of our developers are women. In Silicon Valley, the average is 7%. Overall, our company is 40% women, even though it is a high-tech software company. I really am proud of the culture we have created that allows people a lot of flexibility. Whether they have kids, or they’re taking care of parents, or they’re taking care of their dog, we have a culture that respects people.

I think people are more creative and innovative, and I think they’ll work harder and be more loyal if you recognize that everybody wants to and needs to go home at night and do something else. Nobody likes to be at the office just because face time is important. If people can be judged by metrics and goals and not how many hours they are at the office, everybody is happier.

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The Future of the Business

We just expanded our office space. We are on the fifth floor of a building and we just took over half of the fourth floor because of our growth. We are on our way to 100 employees and 500,000 entrepreneurs who have used LivePlan, so both of those are really exciting milestones.

Advice for New Business Owners

The biggest issue I see when I mentor entrepreneurs is that so many founders will say, “The numbers aren’t my thing, that’s not why I started the business.”

I just don’t think that you can afford to be a business owner if you don’t understand some basic business finances. I think people need to educate themselves, understand what the numbers mean, and understand what they should be tracking.

If numbers are really not their thing, then they need to think about who’s going to bring that expertise into their company, whether they need to bring in a partner, or whether that’s their first hire. The finance side of business is often what business owners hate most. I think, a lot of times, entrepreneurs hate it because they’re scared of it.


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About the Author — Ashley Sweren is a freelance marketing writer and editor. She owns her own small business, Firework Writing (http://www.fireworkwritingonline.com/), located in San Jose, California.

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One response to “How the Parsons Built a Business That Helps Other Entrepreneurs

  1. Great article. Personally, i think e commerce businesses are the future, and every section of this type of business should be very well organised and established from the beginning. And most important things about online selling are actually fulfillment services. It’s not just Amazon that people can trust, there’s so many companies that are good in this area, so you better do you research good, and for the less money, you can get even better service. Distribution is everything.