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For Stephan Schambach, the cloud was the solution. For everyone else, it was the problem.
Schambach believed that a scalable e-commerce platform based in the cloud would enable retailers to grow online much faster than they could with licensed software. So in 2004 he founded Demandware, one of the first and most ambitious cloud companies ever.
But no one was ready.
“I would get meetings with venture capitalists, and when I started describing the idea the meetings would end,” Schambach laughs. “They still had a hangover from the 2001 tech crash.” That changed when he came to General Catalyst, with its deep experience in retail, e-commerce and enterprise software.
Here Comes the Cloud
“It was very early for any enterprise to put mission-critical applications in the cloud,” says Larry Bohn, a managing director at the firm. “But we believed e-commerce was going to be huge and decided to fund Demandware provided that Stephan could get over a few hurdles. It didn’t take long, because he was relentless.”
With a successful e-commerce startup already behind him, Schambach knew exactly what he needed from venture capital. “General Catalyst’s leaders have entrepreneurial backgrounds so they understand risk. They have operating experience so they know the importance of rapid growth. And they have a wonderful culture.”
Schambach worked in the Boston offices of General Catalyst for six months to turn his prototype platform into a business. Bohn negotiated the licensing of key technology out of Schambach’s previous company. He also helped pay for research showing that many retailers were not happy with the results from their home-grown e-commerce systems.
The stage was set for Schambach’s biggest challenge: convincing a retailer to take the plunge on Demandware. “We were selling a model that was unheard of at that time,” he recalls.” Even when we offered to give it away, big companies didn’t want it.”
So Schambach looked for small, ambitious retailers eager to transcend their local markets. He found them in New York City, starting with Zabar’s: a decades-old Seventh Avenue delicatessen beloved by residents and visitors alike. From these first customers he got references that won bigger customers. He continued up the ladder until national retailers were paying attention.
“They finally began to understand the benefits of the model,” Schambach explains. “Demandware can continually evolve the platform in the cloud to make it faster and less expensive, but customers can keep all the customizations of their own site. It’s the best of both worlds.”
General Catalyst was the lead investor for Demandware’s A and B rounds, and Bohn joined the board to help the company scale up fast. “GC has an outstanding network of executives and programmers, and we made extensive use of that to get the best people into our company,” Schambach adds. In 2008, Demandware took off. Revenue grew more than 650% over the next three years and the company went public in 2012. The stock soared 50% the first day.
Today Demandware’s customer list includes hundreds of leading retailers around the world, and they combined for 100 billion consumer transactions on the platform in 2014. “Before Stephan came along, big retailers were convinced that the software license model was the only way to go,” Bohn observes. “Now everyone is comfortable with SaaS apps running in the cloud, and a lot of that is because of one visionary guy.”
And some timely sunshine from General Catalyst.