Karl Sun, Cofounder and CEO of Lucidchart
EY / Lucid
Wind back to 2009: Karl Sun closed out his seven years at Google GOOGL , where he started as its Head of Patents in 2002, became the Head of Business Development for the company’s China division by 2005, and ended his tenure as Google.org GOOGL ’s Investments Principal in 2009.
In short, Karl started at the company when it was four years old and doing $400 million in annual revenue; when he left, Google was reportedly doing well over $23 billion.
Even so, he quit and moved to Utah. Sure, we know Utah as a vibrant tech scene today, but back in 2010 — well, not so much.
But there, Karl would meet his cofounder Ben Dilts at a speed pitching event. With a shared belief that there was a gap in visual collaboration and communication, especially cloud-based solutions, Karl and Ben started Lucidchart. Fast forward 10 years, the company has raised $114.5 million, serves over 20 million users and 100,000 enterprise customers, and has over 600 employees.
Here’s the Lucidchart story.
We often hear about legendary companies being started out of Silicon Valley garages or dorm rooms and cofounders meeting at colleges. Lucidchart’s start was different.
Karl was impressed by an initial prototype Ben had built on nights and weekends while balancing a full-time job and became the first investor in the company. It wasn’t until later that Karl would join as cofounder and CEO, he tells me.
The company’s first office was the living room of Ben’s student apartment near BYU, where they worked on the early iterations of the product for about 12 months. Later, they moved and spent 6 months in a cold, rented basement, Karl says.
The Utah basement Lucidchart’s founding team worked out of for six months.
Lucidchart / SaaStr
They built and built and built. Eventually, the pair went on to acquire their first paying customer and raise an additional $200,000 from Karl’s network. That money ultimately gave Ben the confidence to quit his full-time job and double-down on building and growing Lucidchart. It also allowed Karl and Ben to hire someone to wear the finance, marketing, and business development hats; that person was Dave Grow, who joined the company as its President and COO.
Starting As A Freemium Business
Though Lucidchart now has a large number of enterprise customers, including Google and NBC Universal, the company wasn’t always playing the B2B SaaS game. That’s largely because “None of us had a background in sales, but what we knew and originally were passionate about was building a great product,” Karl tells me.
Despite the importance of talking to customers and organizations for customer discovery and sales, the company’s real focus was on “building a product that was as easy to use and intuitive as possible.” This is actually also the philosophy that companies like Slack and Dropbox employed in their early days.
Using The Freemium Model To Acquire Enterprise Customers
If a lot of employees at a company find a software product to be helpful to their day-to-day work, it generally makes sense for that company to collate those use cases and purchase a software license that makes it easier for the organization to use that software.
For Lucidchart, this principle is a big selling point and what motivated building a B2B sales team.
Because the company started as a freemium-only product, it would continue to acquire users without having to talk to companies at all. But user growth wasn’t entirely scattered; patterns would emerge and give cues as to which companies Lucidchart could present proposals to. For instance, “[We would] contact companies where we had a significant number of users and provide them with a solution for bringing them all together,” Karl explains.
And this strategy paid off.
In 2012, Lucidchart landed Pearson as its first enterprise customer while the company was in the midst of picking enterprise software to enhance workplace collaboration and productivity. Once that partnership happened, user adoption of Lucidchart even within Pearson’s business surged by thousands.
Lucidchart would replicate this strategy over and over again as it continues to acquire 600,000 new users per month. And though convincing an organization to adopt new software is always a tough sell, Lucidchart’s freemium customers would play a pivotal role in the sales cycle.
As Karl describes it: “Because of our freemium motion, by the time we are having conversations with IT buyers, we have a great case for value because we’re able to tell them they already have a group of successful users across their company. From there, we’re able to explain the benefit of wrapping them all together in an enterprise account and also provide additional information around functionality and effective usage.
As other large organizations joined Pearson on Lucidchart’s enterprise client roster, it it was clear that some things needed to change. “At the time, the product was largely built to support teams of dozens or hundreds, not thousands,” Karl tells me.
Changes needed to be made — and they needed to be made quickly in order to meet these larger enterprise contracts on a timeline.
For instance, organizations typically like to have robust admin tools, which consumer products don’t really need. At Lucidchart, this meant it needed a “significant overhaul of [its] user and administration systems in the product to scale with enterprise clients,” Karl tells me.
Another big challenge Lucidchart saw was that as it gained more enterprise customers, use cases for these customers very rarely overlapped. That is, companies may create similar diagrams at times, but what they have very specific needs for their organization that spans departments and industries.
Once the Lucidchart team figured out how to manage the differences between serving individual users and large organizations, the new game was really figuring out how it could widen the top of its funnel and convert more paid enterprise customers.
Lucidchart’s Three-Step Growth Playbook
When I asked Karl about Lucidchart’s three most important actions it takes to reach and convert new customers, this is what he told me.
- Direct outreach: “We put a lot of effort into making sure that current and potential users understand we can solve a need that they have. This involves a few things, but one of the biggest factors is our focus on SEO. We rank for over 1000 keywords and phrases.”
- Joining ecosystems: “One of the main tenets of Lucidchart is that users can use us in the systems where they work. This meant working really hard on our integrations and being available in different ecosystems. Being a part of the launch of the Google Chrome Store and Google Apps Marketplace and being able to grow up in the Google ecosystem was huge for us early on. But now you can also find and use the product within Atlassian TEAM ’s ecosystem, Microsoft MSFT 365, and Slack, to name a few.”
- Sharing and collaboration virality: “Ben originally created Lucidchart because he was really sick of keeping track of different versions being emailed back and forth and printed out edits. Some of his main pain points centered around the need for better collaboration … and not only does [solving them] make for a better experience for the user, but it also then becomes something that they want to share with others to solve their same pains.”
Company Culture: Making People A Priority And ‘Fostering A Culture Of Experimentation’
When companies establish playbooks for growth and charge quickly ahead, they often forget about the people that got them to where they are — the same people they need at every step of their growth.
In the early days, Karl interviewed every new hire. But as the company neared 600 employees and counting, that individualized hiring approach at the C-Suite level just wasn’t sustainable anymore.
Now, in addition to hiring experts in different areas of the business to pick out candidates to join the company, Karl tells me: “I instituted a hiring committee … to discuss every hire.”
To take a step back from the granular details of hiring new people at Lucidchart, I asked Karl what kind of culture he hopes to build at his company. To him as a CEO, it is crucial to foster a culture of experimentation.
That culture will inevitably result in at least some failure, of course. One summer, for instance, Lucidchart’s marketing team worked on a plan to go viral and it ended up not working out.
Even still, that culture of experimentation has lingered since day one.
From being turned down by investors for not being located in the Silicon Valley to working out of BYU student housing and a rented basement for collectively over a year and a half, things weren’t always looking up.
But from that adversity and experimentation, Karl and Ben have discovered what makes Lucidchart valuable to 20 million people and growing.