In-depth Market Research a Key to Spiceworks’ Success

Last Wednesday, Startup Grind Austin welcome Jay Hallberg, Co-founder of Spiceworks. Spiceworks has been called the “Facebook of IT” by Tech Crunch, and provides IT management software – for free – and has a community of 2 million users. The evening was fantastic, with Jay providing incredible insight into why Spiceworks has been so successful, starting with the right team, disciplined research and lean approaches before Lean Startup.

Spiceworks’ founders all worked together at Motive. They had been there together for several years before they began talking about starting their own company. The power of having already worked through difficult times together is an important piece of their success. They trusted each other and understood what would make a work environment they would all enjoy.

The co-founders approach to starting a company was very disciplined. They met regularly and gave themselves a goal of 6 months to validate an idea. They brainstormed ideas, researched them, and destroyed them. This was the most important part; they were brutally honest with themselves about the idea and about their ability to execute it. Eventually they had an idea that they took through business plan and were ready to use, when they realized it would be no fun and they canned it. The six months was almost up, they looked at their backgrounds and found an idea that they could do in network administration.

They validated this idea by meeting with IT managers for small companies and watching them work. Jay said the rule of 7 was very apparent, after 7 conversations the same patterns kept emerging. None of the people liked any of the tools they used. As they worked on this idea, they realized that they could build a tool that people would like and would simplify their work and they realized, sooner or later, a competitor would undercut their pricing, driving the prices down to zero. So they might as well start at zero. Spiceworks also built the revenue model into the beta version. They tested it with the software, in Jay’s words “they wanted to find out quick” if it wasn’t going to work. In 2006 the thought of themselves as the “iTunes of IT” now they are “where IT goes to work”.

Jay also talked about the strengths and weaknesses of starting a technology company in Austin. On the one hand, it is easier to focus in Austin, as there are fewer distractions. On the other hand, visibility to press and VCs is significantly less than in the bay area, for example. He indicated that they were fortunate as well, they were an experienced team with access and credibility with investors in Austin, which allowed them to get funding early.