- PagerDuty is a $1.8 billion public company that had a successful IPO in 2019.
- But the company was almost derailed when it was a tiny startup trying to raise its first round of funding, cofounder and original CEO Alex Solomon recently told Business Insider's US editor in chief Alyson Shontell.
- In those early days, with only 19 people on the payroll, Solomon had made a classic Silicon Valley mistake and hired what's known as a "brilliant jerk" engineer.
- After lots of rejection from VCs, PagerDuty was on the cusp of getting a Series A investor when that engineer threatened to quit and take others with him, potentially derailing the investment.
- The incident forever changed who and how the company hired people, Solomon said.
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One of the stars of last year's enterprise tech IPO market was PagerDuty, with an April debut on the NYSE that soared 60%.
Cofounder and original CEO Alex Solomon, who shepherded the company for its first 11 years, recently sat down with Business Insider's US editor-in-chief Alyson Shontell at the Ascent Conference to talk about those startup years.
Today the company is valued at $1.8 billion with most analysts bullish on its future, according to Yahoo finance. Revenues have grown from $79.6 million in 2018 to $117.8 million in 2019 under hired-gun CEO Jennifer Tejada who Solomon hired to replace himself in 2016. Solomon is now CTO.
But none of that might have happened if Solomon hadn't thwarted an employee revolt when the company was only 19-people.
Solomon told Shontell how a brilliant but "overly negative" early-hire engineer taught him a valuable lesson about who not to hire.
$20,000 a month and more
PagerDuty is known for its IT incident software that alerts IT pros when they have a system failure and helps them fix it. That product was the brainchild of Solomon's experience working as an engineer at Amazon, where engineers had to carry pagers which would go off if there was a problem with the software they were responsible for, he told Shontell.
Amazon built an in-house system for managing these alerts.
Solomon and his cofounders, Andrew Miklas and Baskar Puvanathasan, took that idea and built a product that did the same thing for other corporate IT teams, all of whom were, back in those days, on pager duty.
At first, they bootstrapped their company, with no plan to seek funds with VCs.
"Our dream was when we get to $20,000 a month in recurring revenue, we know we've would have made it and we're going to be sitting on a beach drinking champagne and smoking cigars," Solomon told Shontell. "Obviously that time came and went and we kept on growing."
With growth, they knew they needed help and applied to the famous startup accelerator Y Combinator, which meant moving the company and their families from Toronto to San Francisco. (It took them four tries to get accepted in the program).
Even after Y Combinator, they struggled to get an investor to bite. And just when they were finally on the cusp of getting a Series A term sheet, one of their key engineers threatened to quit. Not only that, two other engineers were threatening to go with him.
"We hired one engineer that was really, really smart but also very negative," Solomon recounted. "He actually ended up influencing two other engineers on the team. They basically ended up banding together."
The three of them wanted to launch their own startup based on an internal tool they had built at PagerDuty. "So they were basically taking something that they had built on company time and wanted to kind of spin it off," he said.
The company only had 19 people at time, so losing three people would have been like "losing one-third of our engineering team" and that, the founders feared, would have scared investors off "weeks before we closed our Series A," he said.
Who not to hire
Solomon managed to convince the guy and his companions not to leave for a few months until investment money was in hand and they could hire replacements. But he never forgot that dicey time. "This led us to the 'no a--holes' rule because this person was candidly an a--hole," Solomon says. Another common name for this type of Silicon Valley engineer is the "brilliant jerk."
From then on, the founders focused as much on a job candidate's ability to work with their teammates as they did on technical skills. Someone "who complained about their previous coworkers and their previous boss a lot in the interview process, that's a big red flag that we learned along the way," he said.
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