Russ: This is the BusinessMakers Show, heard here on the radio, and seen online at theBusinessMakers.com. With me now I have Eric Elfman, founder and CEO of Onit. Eric, welcome to BusinessMakers Show.

Eric: Russ, thanks for having me back.

Russ: You bet. Well, that's a good point, "Back." I checked, and it was in November of 2005, Episode No. 23. Today, we're on Episode 340-something. You were the guest as founder and CEO of DataCert.

Eric: Right.

Russ: And from what I understand, you really got that plane off the ground and it's doing so well, that it's doing well without you now. Would that be accurate?

Eric: It got flying in the ten years I was there, and continues to fly and grow as fast as when I was there. It's still a hot Houston company.

Russ: Cool, cool, cool. But, today, we wanna talk about Onit. So tell us about Onit.

Eric: Well, backing up just a little bit, I left DataCert in late 2008. I had kinda become a day-to-day manager of almost 200 employees, and it took me a while to realize I wasn't a day-to-day manager type. I was more of an entrepreneur, and not only did I not like managing 200 employees, I wasn't very good at it. I was an entrepreneur. And so I had an opportunity to get the management strong at DataCert, and leave and go figure out what I wanted to do next.

And so I took a couple of years to reflect and explore what it was I really was. Was I a professional CEO or an accidental CEO, because I found companies? But eventually, came to the conclusion after a one-year stint at the Houston Technology Center where I was an entrepreneur in residence and donated my time, that I wanted to start another company. And the good news is, I was able to do it with the guy I cofounded DataCert with, and there's actually two other cofounder of Onit. So the four of us have been a team literally since 1999 or so, and we're able to do it, again.

Russ: Was it a short period from when you decided, "I wanna go be an entrepreneur and found a company," and you knew exactly what to do, or did that take some time?

Eric: So that took a little bit of time. And, in fact, what Onit is doing today is not really what my partners and I thought that we were gonna do. We were able to fund the business. Really, we started in early 2010, so it's been two years getting to this point. And most of the last two years has been developing product, putting together advisory boards of perspective customers. And we got to explore and really figure out what it was that this company was gonna offer to the market.

We had an initial idea, but it turns out we were a couple of degrees off. Good news, is all the technology we created is the foundation of what we're doing today. But I would say it took us two years to really come into what the real problem that needed solving was.

Russ: Okay. Well describe that problem, and describe Onit.

Eric: Great. So Onit today sells something we call Onit apps, and an Onit app builder, and not an app in the sense that you can download it to your phone or iPad. But what is an app? An app is a very distinct set of functionality. It's typically a little program that does one thing well. There's an app for weather. There's an app for stocks. Well, we are very specific apps for problems that knowledge business workers have. And so in short, Onit sells Onit apps to professionals for business process management and business productivity.

So a couple of examples. You're in the compliance department or the HR department, and the only way have you ethics violations reported to you is through a 1-800 number and a voicemail box that a secretary or somebody has to pick up, type it in somewhere. There's a much more rational way to do that. We have an Onit app that is a set forms and processes that the HR department can roll out to the company, and it says, "If you have an ethics violation, follow this link, you fill out the date of a request, and it turns into something actionable, and routed around to the correct people in the organization. It's just a more rational way to deal with that type of data. And so we have an ethics violation app, just like we have a contract review and submission app, and a worker's comp claim app. Our apps are dedicated to very specific problems that professionals have.

Russ: And just to be clear, this ethics violation app is not something you go do if you're getting ready to commit an ethics violation. [Laughs]

Eric: Right [laughs]. Right, right.

Russ: I couldn't resist it. I couldn't resist it. Okay. So obviously, your target, are much larger companies, right?

Eric: Well, actually, they're big, right? We have two market segments. It's really $1 billion to $10 billion companies, which is our core target market. That is smaller than the Fortune 250. And there are about 7,000 of those companies in the US, Canada, and Western Europe. These are the folks that can't afford bigger technology like IBM, to solve these type of process problems, but they have needs much more than you can get from some of the lighter free apps that you use as a consumer. And so we're still targeting very big customers, but some of our early customers are $20 million hospital systems in Mississippi. So we really scale up and down. And even though I told you we're not targeting the Fortune 250, our first customer was a Fortune 100. So it really is all across the spectrum, the size of the companies. We target $1 billion to $10 billion companies.

Russ: Okay. Give us another example of an app.

Eric: Yeah, so a whistleblower violation is much like an ethics violation, someone in the organization, or maybe it's Sarbanes-Oxley irregularity report. Someone sees something wrong inside of the organization, and they wanna report it whether it is anonymous or not. Mostly that's done with a voicemail, a voicemail attached to a 1?800 number that someone calls. Well, rarely do you get everything that you care about in that report, and rarely does it efficiently make it to the people who care about it. So you may be whistle blowing about a Sarbanes-Oxley irregularity that you saw, so it needs to go someone in finance, and maybe and excellent. And so our app understands what type of violation is being reported because we ask the person making the report, "What is this dealing with?" and we ask the right questions. And so when the report is filled out, that data is routed around automatically to the people that need to see it, and so it becomes a case that gets managed, again, much more efficiently.

How are companies doing it today? It's voicemail and they're tracking them on spreadsheets. And, ultimately, the problems we're solving or for professionals who if they can't solve a problem with e-mail or Excel, it's not a problem that gets solved because they're not large enough to go to the IT organization to write a piece of software to support.

Russ: Wow, that's interesting, too. You've always sort of had this ability to hone in on something. I think you did that quite well at DataCert as well, which is interesting. But tell us another one. This is interesting. If somebody becomes and Onit customer, do they automatically get all of these apps, or do sell 'em one app at a time? How does the business arrangement work?

Eric: It's one app at a time, right? It goes back to the heart of, "What is an app?" An app is a little bit of functionality. When you download an app to your phone, it's not trying to be your whole phone's operating system. It's trying to solve one little problem. And so how do we make it easy for people to buy?

Every professional we talk to has a problem that they're trying to solve, and it's always different. "Well, I'm really dealing with worker's comp claims, and they're overwhelming me. And I deal 1,000 of 'em a year, and I need a more efficient -" so what we do is we allow that person who has one problem they're trying to solve, to buy an Onit app and solve that problem. The hope is that over time, they'll find other problems to solve with an Onit app, just like we do today with our phones and our iPads.

Russ: All right. So just to put it in the ballpark, what would a company pay for an ethics violation reporting app?

Eric: $2,000.00 a month. We'll discount for more apps, but this is all cloud-based. There's no infrastructure to be bought, very little setup and configuration necessary. And so we're solving relatively big problems, even though they're small apps. And so $2,000.00 a month so far has not proved to have some resistance inside organizations.

Russ: Okay. So, in fact, it's a good lead in. How long have you been in business now, I mean, where you've actually had customers that pay you?

Eric: Yeah. We really just started soft selling I would say in the fourth quarter of last year. So we've got our first five customers, including that big Fortune 100 who's becoming a cornerstone client for us, because while they loved what we were doing with apps, they said, "We don't want you writing our apps for us. Just let us have access to a tool where we can write our own apps." And so it's something we were gonna grow to, anyway, and so we sold them what we call the Onit App Builder. They can use the tool to write their own apps. And so for us, it's the perfect world. We're not even having to expend professional services or implementation. We sell access to the tool, still all cloud. We're not deploying software. And individuals can implement their own processes.

Russ: So the other customers, have all of them bought multiple apps already, or do you have some single app customers of these very few first set of customers?

Eric: A couple of single. One Onit builder customer, and then two that have multiple apps. And so we're already seeing the writing on the wall that every conversation spawns three others, "Well, can you do worker's comp claims? Well, can you handle my contract -?"

Russ: Don't you hate it when that happens? [Laughs]

Eric: Yeah. [Laughs]

Russ: All right. Talking with Eric Elfman, the founder and CEO of Onit, and we'll be back with more with Eric after this. This is the BusinessMakers Show, heard on the radio and seen online at theBusinessMakers.com. This is the BusinessMakers Show, heard on the radio and seen online at theBusinessMakers.com, continuing on with Eric Elfman, founder and CEO of Onit. Now I find this kind of app product approach interesting, but you've told us about two. Tell us about another one or two.

Eric: So two big ones, right? But probably the top one that we're talking about today is contract submission and approval. So think about a company, a $1 billion company, $10 billion, $100 million. They're dealing with multiple contracts that need to get initiated and negotiated in the business unit, and you have to get executive sponsorship and approval, and also legal needs to weigh in. So how is that done today? Typically, it's done with e-mail and Word documents being e?mailed around. So often, someone in a business doesn't really know who in the legal department needs to approve a contract or get it negotiated, and so they start lobbying in phone calls or e-mail.

There's a better way. In fact, there's an app for that. And so there's an Onit app for contract submission and approval. So when a company implements that app, the first thing we do is we distribute links out to their interest or their portal. So now you tell the business, when you wanna contract, go click this link and we'll ask you everything we care about, and based on your answers, "Oh, it's a $1 million contract? That means that your boss has to see it first, and, also, someone in the legal department." And so it collects the data necessary for people to actually do their jobs, and routes that contract around and makes people get to approval or rejection of it, and it's not just in someone's e-mail box. Every company we talk to has a contract review and approval process.

Russ: But, I mean, and just to get more specific on the operation, let's say I'm a participant in this contract pinball game that's going on. And let's say I started it. Would there just be like a little app icon on my desktop that'd say it's a contract, and I'd say, "Okay, I gotta get one going," and I open it up and fire it up and start it, and it would have the intelligence of where it needed to go next. And I would complete my part and say, "Okay. Forward," and, boom, it would go. And then I just sit back until it starts coming back to me? How does it work?

Eric: You pretty much nailed it. So it's not an icon, but it's a little link on the intranet that says Request New Contract, or Request Supplier. It can be as specific as you want. But the first thing it does, you don't have to know the company is using Onit. We don't brand all of this. You've distributed your functionality out to the organization through Onit. And so it opens up. It asks you what type of contract is this. What's the value. Who are the - it asks whatever that company cares about. And then you actually attach whatever agreements are a part of it. You're not a registered used of Onit, but you are now interacting with an Onit app. And when you submit that, you get notification of what's occurred. You could ask questions. Questions can come back to you, all routed through e-mail, or if you are a registered user of Onit, then you have a dashboard that you can go in and manage this.

Russ: Now, clearly, none of us live in a world where there is no competition. And as you're telling me this, I'm thinking, "Well, some of these - aren't there workflow management pieces that ERP software, Lotus Notes software that companies will be using to do this?

Eric: So, you asked a great question. There are technologies that can do this. Every one requires the IT department to do something. Either it's IBM, and they have process management software. But if your IT department hasn't purchased it and won't implement it for you, you can't use it as an individual professional. The same for ERP system. The same for Microsoft SharePoint, which is in more organizations. It's a toolkit. This is the difference with Onit apps. Onit apps are not sold to the IT department of these organizations. It's sold to the business users who have the problem. So IT doesn't have to do it. It's cloud-based. IT doesn't have to deploy something. So our whole differentiation between every other tool that could possibly do this, is we sell to end users. End users can make the decision to buy it. End users can get it deployed without ever going to their IT department. This is key.

Russ: Okay. I understand. Now as we headed down this path again, I think you said you had two more apps you were gonna tell me about. We did the contract, but give me another one.

Eric: So intellectual property protection. And so any company of size starts to be concerned about their own intellectual property, whether it's a trademark or a copyright or patent. So there are forms for uncovering what is intellectual property for an organization. But it's all paper and it's e-mailed around. And so when there's a new patent being filed, we have a process. We have an app for that, which asks all of the constituents in one of these new patent filings, the information that is necessary for it, and gets it routed around, and tracked. Tracking is a big part of this.

Overwhelmingly, the largest use of Microsoft Excel is not for numbers. It's for tracking words and things. And it's horrible at it. It's great at one thing because you can make your Excel spreadsheet look like anything you want. It's bad in the sense that it's not highly collaborative. It's hard to share that thing. And so what we are is a better way to track and process information inside of an organization.

Russ: Okay, really cool. Now, congratulations on getting something off the ground that you're passionate about and excited about. But that is also verified by the fact that you've raised some professional money here, big time. Our audience, as you know, are a bunch entrepreneurs and small businesspeople who love to hear success stories in venture money raising. Share your story. Share the Onit story of fundraising.

Eric: Sure. And look, for all of the success I had at DataCert, what I was never able to do is get a top-tier venture capitalist in the deal. I always wanted that because I thought a top-tier VC brought something to the table. And so a little bit of a story. My partner and I initially funded the company. This is really instructive because I think it's how you do it, stage by stage. And then we went to the Houston Angel Network here in town and got almost half a million dollars out of them, really seed stage. They help companies when you don't have a real business plan, but you're smart and you've got a cool idea. Those are the types of folks that will fund it. That led us to starting a partnerships with the RedHouse Associates. It's a new outfit here in town.

Russ: Doug Erwin.

Eric: Doug Erwin, Mike Clark, Keith Kreuer, Joe Horzepa, all from Pensa, which is a great Houston story from the last '90s, early 2000s. So they have this model where in some cases they'll individually invest as they did in Onit. But we also became a RedHouse Associates client where we're actually officing in the RedHouse and getting a ton of these guys' time. What DataCert was, was a company where we would put four or five people on a plane to anywhere in the country to go close business. Onit Apps, and the Onit App Builder's all about selling with inside sales and not getting on a plan. We haven't been on a plane yet to market, sell, or deploy a deal. And so this is all about building an efficient inside sales organization. I've never done that.

The RedHouse guys have, which is why I went to them, even though I have a successful track record. That led to, boy, now it's time for some professional money. We've got the product. We know the idea. We know how to talk about it. Now we just to add some fuel, and we went to Austin Ventures, and Austin Ventures is the lead investor in this new round. We haven't really figured out exactly when, but it's been a long time since Austin Ventures has invested in a Houston market.

Russ: I know that for a fact. Well, congratulations on all this.

Eric: Thank you.

Russ: So when you do your projections and stuff, are you set, or can you only just see like a year or two down the road and say, "Wow, we're gonna be back," or, "We're gonna be bought," or what? Tell us about the future in your eyes right now.

Eric: Well, you've been here. You know how early this really is, and so we have just started selling. There is a scenario under which we don't go back for capital. I think the better bet is that we have one growth round sometime in 2013. This money, and you can see it in the press, it was $4.1 million. This really lets us prove out the channel strategy and the sell strategy of the company. So we think there's a growth round next year where we really light the afterburners here.

Russ: Cool, cool. Now I did a little research on your site, too, and discovered a very talented group of upper-level managers besides you and your CTO that _____. And they all seem to have DataCert in their background. So is that okay with DataCert, and how did this evolve?

Eric: Yeah. Well, so, look, when I find talent, I try and keep 'em close to me.

Russ: I understand that quite well.

Eric: And so I've never pulled anybody directly out of DataCert. For whatever reason, these four folks - it's Eric Smith, my CTO and cofounder, but also John Gilman, our director of products, and Jill Black, our director of marketing, all of which I worked at DataCert for eight years with. They had all left for their own reasons. When a company gets to be ten years old and 200 employees, it's just different. Day-to-day management is a whole lot different than do whatever you need to do entrepreneurship. And so they'd all left, and we were able to pull 'em all back together. So it's kinda like getting the band back together. Everybody's got flaws, right? So it's not like we're all perfect. But knowing 'em and knowing there's loyalty and a trust factor that comes from eight years of working with someone, is a great way to start off a core team, and so that's what we've done, and so that's what we've done.

Russ: Well, absolutely. And just hearing you talk, Eric, about being at a company with 200 people and being down to this core group, how do the four of you work together? Is it active collaboration or is it just total respect for everybody's decision making capability and they're out making decisions and building products and coming back in and reporting? How do you work together?

Eric: So pretty highly collaborative, but at a level that doesn't really scale, as you grow [laughs]. And so collaborative was the only way to take this stage were trying to figure out the real thing that we selling. It's about the product. It's about messaging. It's about can you get it funded? Can you get it financed? Can you sell it? So highly collaborative to this day. We're now at eight folks today, and probably will be 20 by the end of the summer, and probably closer to 30. And so we're just now trying to figure out the same we had to do at DataCert, which is not everybody can do everything all the time. And so there has to be some focus. And so now we're at that stage, we're having to start to define that

But I gotta tell you, one of the big differences, by the time we started raising money at DataCert, I had a CFO. I had a lawyer on staff. I had administrative support. We have none of that here, nor do we plan on hiring it. My general administrative staff is one, and it's me, and we plan on continuing that at least through this year. So the administrative burden is pretty high.

Russ: Okay. Fantastic. Talking with Eric Elfman, founder and CEO of Onit, and we're gonna be back with more with him after this. In fact, we're gonna kinda get a little bit more into his entrepreneurial DNA. This is the BusinessMakers Show, heard on the radio and seen online at theBusinessMakers.com. This is the BusinessMakers Show, heard here on the radio, and seen online at theBusinessMakers.com, and continuing on with Eric Elfman, the founder and CEO of Onit. Now, Eric, when you were on previously, back in '05 having just sort of started DataCert, I remember talking to you about your background, your education, and how you entered into the entrepreneurial world, and I loved the explanation because you said, "I was just trying to get more and more knowledge about what it took, and I was always optimistic that I'd be able to find something in the business world that needed some sort of improvement, and that would be my business." It seems like that part of your personality has surfaced once again.

Eric: Absolutely. I mean, look, we were a little smarter this time in that we were able to finance that exploration. And we went to our perspective market with a kernel of an idea, discovered it was interesting, but not the most interesting thing. And so we were able to keep our ear to the ground and listen to what the real problem was that needed solving.

Russ: What was that thing that you changed? Because you've referred to that a couple a times. What was the prior version of Onit?

Eric: Yeah, so we started the company thinking we were gonna be a little like DataCert. DataCert was in the business of helping big legal departments manage their law firms and lower how much they spent with law firms. Our initial idea was take that model, but put it in the cloud, and deliver it to much smaller companies. DataCert, and most of the companies _____ had trouble going below big companies. And so it was more about the data. How do we help you manage data at a lower - how much you spend with outside law firms.

And so we went to market with this data management idea, and discovered it was more about the processes. These smaller legal department professionals were dealing more with, "Oh, I've just got so much e-mail asking me to do work, and I've gotta pick up the phone and be an administrator and ask question and set up appointments." So it was more about the process." And so we were able to say, "Oh, hold on. Everything we're doing applies here, but why don't we focus on this?" And that's what we did.

Russ: Really cool. Really cool. All right. So before I let you go, let imagine that there's a young aspiring entrepreneur tuned in right now, totally intrigued with your life and your success so far. What kind of general advice might you give him, or her, before they dive into this world?

Eric: Well, I tell you, I think I'd maybe answered that question last time I was here with a, "Just do it." Right?

Russ: Right.

Eric: I mean, there's never a perfect time to start a business. It was the recession when we started this business. I think it was a recession or the tail of a recession when we founded the last one. So the only thing I would temper that with, because I've seen a lot of businesses where people have just done it, and really put their families at risk and their own money on the line. You've really gotta risk adjust it today and seek as much advice.

When I started DataCert in '98, there was no Houston Technology Center. There was no Rice Alliance. There was no surge accelerator. There were none of these in the market. Now there are a ton of resources that you really need to go test an idea. There have been folks that have been in the same place you are, and you've gotta really listen to advice. I've, unfortunately, seen so many folks that against all advice, continue with their passion. And, yes, there are examples where Fred Smith at FedEx was right, despite his business plan failure. But seek advice.

Russ: Okay. That's really good advice, and I really appreciate you sharing your story with us. I wanna stay in touch with you and have you back in here as Onit climbs up the ladder.

Eric: Thank you.

Russ: All right. That's Eric Elfman, found and CEO of Onit. And this is the BusinessMakers Show, heard on the radio, and seen online at theBusinessMakers.com.