KnowBe4

Stu Showerman had already built and sold a company before KnowBe4. His previous business, Sunbelt Software, sold for about $10 million, which he says left him financially set for life. The problem that shaped his next venture came from that earlier company. Social engineering was its biggest weakness: attackers sent phishing emails or bad links, and employees clicked them, and that infected their workstations. Stu concluded that nobody was taking care of the human side of IT security, and he started KnowBe4 in 2010, with the product reaching the market in April 2011.

The product is a SaaS platform with three parts: a baseline phishing test to measure how many employees are "fish prone," online interactive security training delivered through the browser, and frequent simulated phishing attacks to keep staff alert. Stu contrasted this with the old model of security awareness, which he described as a lecture in the break room with coffee, donuts, and "death by PowerPoint." The company also offers a "fish alert" button that customers place in Outlook or Gmail so employees can report suspicious emails. KnowBe4 analyzes those reports and uses the real phishing messages that get through filters as training material.

The company was bootstrapped for its first five years. Stu says he personally spent about $1 million building it. Pricing is annual and paid upfront, at roughly $15 per user per year, and the company targets organizations with 50 or more users, from small and medium businesses to large enterprises.

Stu credits inbound marketing for most of the growth. KnowBe4 publishes white papers, offers free tools and downloads, and sends a newsletter to a list that he says reached about 1.2 million people. He explained that the list was built slowly over the years through these free resources. The source does not describe how the first paying customer was acquired.

The main driver was a sticky subscription model. Stu said the company's churn is about 15% per year, which means about 85% of customers renew, making revenue relatively predictable. He also described unit economics that pay back quickly: customer acquisition cost of about $2,600 against an average selling price of about $4,600 per year, with annual upfront payment producing immediate margin. He estimated a lifetime value ratio of about seven times acquisition cost.

Revenue grew sharply. Stu reported $7 million in 2015, $24 million in 2016, and a target of $50 million for 2017. He said March 2017 was the best day of his professional career, with about $1 million booked that day and about $5 million in the month, driven by large enterprise deals that tend to close at quarter-end. Enterprise sales cycles and end-of-quarter timing make monthly figures lumpy, which is worth noting when reading the $5 million figure.

The company also took outside capital. It raised $8 million from the venture firm Elephant in late 2015, which took 20%, and later more money in a follow-up round. Stu also gave his co-founder, Kevin Mitnick, half the company in exchange for his hacking expertise. Stu said the goal was to prepare the company to go public.

As of the interview, KnowBe4 had about 280 employees in Tampa Bay, Florida, and was growing fast. Stu described a plan to go public and to use the public currency to acquire competitors such as FishMe and Wombats. He said the company had roughly 9,500 customers, though the figures he gave in the interview were not always consistent, so the exact customer count should be treated with caution.