In this episode of Founded and Funded, Managing Director Scott Jacobson is talking with CommerceIQ CEO Guru Hariharan. CommerceIQ is a retail e-commerce management platform that automates and unifies category analytics, retail media management, and sales and operations all under one roof. The company secured $115 million in funding in March and just made its first acquisition — e-fundamentals — to expand into digital shelf analytics. The acquisition actually brings the company around full circle in a sense. CommerceIQ was originally Boomerang Commerce, which was a dynamic pricing software for multi-brand retail companies to better compete with the likes of Amazon. But Guru realized that despite the quality of that software and the A+ team he’d pulled together, he was trying to grow a business in an F market. He ended up pivoting the entire company to what is now CommerceIQ, selling the Boomerang business to Lowe’s. Scott and Guru dive into what went into navigating those turbulent times, what it takes to be a vertical SaaS company, and Guru’s realization that he couldn’t solve every problem as though it were a math problem.
This transcript was automatically generated and edited for clarity.
Scott: Hi, everybody, I’m Scott Jacobson, Managing Director at Madrona Venture Group, and it’s my pleasure to have Guru Hariharan, the Co-founder and CEO of CommerceIQ, here with me today.
Guru: Thanks, Scott. Thanks for having me. It’s a pleasure to be here.
Scott: Yeah, absolutely. So, for everyone who doesn’t know CommerceIQ, which is an ever-smaller part of the world, why don’t we start with what your product does? What problems does it solve for your customers? What’s the market opportunity you’re going after.
Guru: CommerceIQ is an AI platform that assists brands and agencies with their digital transformation to essentially help grow their market share and grow sales in a very profitable way. We call it retail e-commerce management platform — REM that’s the category we are creating. We are essentially helping every brand of the planet move from analog to algorithms.
Scott: You and I have had the opportunity to work together for many years. Madrona is a very happy investor in CommerceIQ. And certainly, my experience as an investor is that most great startups have very non-linear paths to success. CommerceIQ has a particularly non-linear path to where you ended up today. I think it’d be fun to unpack that. So, you raised your first round of venture financing, and you were solving a different set of problems for a different customer. Maybe start with who is your original target market? Why did you start there?
Guru: What we ended up starting out with was Boomerang Commerce which was going after this market for multi-brand retail. In fact, even rewinding back a little bit, this was my 18th iteration as a founder. For the first two years, I was iterating with a lot of ideas. I actually had a prototype for what is now Etsy. I had a prototype for what is now Viva — a sales tool for pharmaceutical companies… things like that. I could go on and on. But eventually, I realized that one has to connect the dots, as they would say. There has to be a founder-market fit. And for me, it was e-commerce. And for me, it was machine learning. It was the intersection of those two things because academically, I’m a machine learner and professionally, I’m an e-commerce guy. So, I kind of went back to my roots. Having worked at Amazon for multiple years, I had actually seen the power of algorithms. How algorithms could beat any human-dominated system. And that’s what Amazon did. We did an amazing job, and we got. Market share in almost every category by just putting algorithms to work. So, I kind of went back to those roots, and I said, “Wow if Amazon could do something like that, there’s gotta be an opportunity to go create algorithmic software for retail in general.”
We looked at multi-brand retailers — companies like say, Staples and Office Depot, or even Walmart and companies like that. And there was definitely a lot of room for improvement over that was crying out loud for some sort of innovation. So, I left my day job, and I started the company. And after these 17 iterations, the 18th iteration was a dynamic pricing software, and that hit the mark. And frankly, it hit the mark because I knew what I was doing on that knew what the right after was. And we just quoted up a great solution. And we took it to market. And we had amazing traction. We had companies like Staples, Office Depot, Home Depot, Lowe’s, Target, and Walmart — almost every multi-brand retailer that you know of today, or that you knew of before bankruptcies, was our customer.
Scott: One of Guru and my things in common is we both worked at Amazon, and I think both have this similar insight that you could apply technology, and in your case, machine learning, to great effect in e-com and why not build tech for other retailers? And you got to about $10 million of ARR in that business. You raised venture funding from a variety of funds. And then, we know the conclusion, which is you ended up exiting that business. And you’re in a different business today. Tell us a little bit about that journey. Why did you decide to exit that business — I think you foreshadowed a little bit with your comment around bankruptcy. But even more important about making the decision, how do you navigate that decision with you know, your team, your board, your customers who’ve bet on you?
Guru: Yeah. I think the journey was very intense in that period. It was actually harder for me to build a business, which was slow growing and so tough, than right now. Like in a way, it is actually harder to build a bad business — And that was a bad business because of the market that we bet on — than it is to build a good business.
We started off on this journey with multi-brand retail, right? There was an urgent problem we were solving. Product-market fit was amazing. The product was delivering great value to customers. Our net dollar retentions were off the charts. All that is great. The team was also solid. We had assembled an A+ team to work on it — an intersection of technology and retail and consulting. The problem was, that we bet on the wrong market. And hindsight is 20/20 — I learned the hard way that one could put a B or even a C team in an A+ market and make some hay. But putting an A+ team in a C or F market in our case is not a recipe for success. That is a wave that a founder should never be fighting.
We actually got to $10 million in ARR, and then we saw churn, which was a company filing bankruptcy, and it was a market-driven churn. We went back to $8M, then we crossed $10M again. Then we had this cake we brought in saying, “Hey guys, we crossed $10M” the third time we tried to celebrate, and I could see in everybody’s face that nobody was there for a celebration. In fact, after that, one of my colleagues took me to this restaurant, and he said, “Guru, I’m here for you. I’m here to build this company — this is an amazing technology that you’re building. There’s a lot of opportunity here. But if you look at it, we are kind of a hamster on a wheel. We are going after that $10 million mark for the third time. And this is not a time for us to celebrate.” That was a conversation that hit me hard. Oftentimes as a founder, as a CEO, as an operator, it’s very hard to pull back and look at the broader picture.
I said,” Okay, well, why don’t you be a part of that solution? Why don’t you help us solve that? And so essentially, we decided on that day to do a hard pivot. We were starting to explore what can we do next? And especially this time, we were going to bet on the right market — a growing market, an A+ market. And we started to look at all sorts of different avenues. It was almost like a blank sheet of paper with some money in the bank with some extremely smart colleagues and of course, a very driven board. What the hell can we do?
And so, after a lot of conversations, and Scott, you and I spent countless hours debating all these avenues, much to your frustration going back and forth on some of these things. We could not have messed up on this one. So, I was definitely slow. I maybe took a year more than I should have taken. We sort of did a lot of experiments. We talked to a lot of different types of companies and different types of industries, and it was also important for us to ask the right questions in terms of what the problem areas and things like that were? And that was the time we were lucky that Amazon acquired Whole Foods. And there was a huge rock that was dropped what was a calm pond at that time called e-commerce. And there was a massive tsunami of e-commerce coming up, and we could see it.
I remember getting a call from a top five CPG, a CIO, who we had sold to at Walmart — she had actually joined a CPG company. And she called me and said, ” My CEO just called me. We’re going to take a flight out to our headquarters. They’ve asked us to throw out our three-year vision and create a new three-year vision with Amazon in the center.” Not even e-commerce. She said Amazon in the center. So, this was like, this was crying out loud saying, okay, well, I’m connecting the dots here, not just for myself, but also for the company. We knew how every skew was operating. We knew the P&L of every skew, but we were helping the retailers be successful with that. We said, why not turn around and help the same brands who are actually selling those products? At the end of the day, consumers are not stopping to buy Pampers diapers or Kleenex tissue. They may stop going to a brick-and-mortar store, then they’ll probably go buy from an e-commerce store, like Amazon or Instacart. That’s what sort of was a small seed that we ended up watering and we did some more customer interviews.
And we ended up getting to the right answer, I would say. And that was CommerceIQ.
Scott: Maybe to pop up a level, you know, the belief was you could build technology to help very large enterprise players compete with Amazon. And it turned out that wasn’t enough. And so, when you talk about bankruptcies, it was these very large omnichannel retailers who sold both online and offline being beaten soundly in the market by Amazon. And so, in spite of the quality of the software, when you had to look at companies’ 10-Qs to figure out whether they can keep paying for it or not, I think that was the fundamental challenge. I remember a conversation, or maybe multiple conversations, we had as a board talking about, okay, what did we do about it? And, you came to the board and said, “Hey, I think we should sell this business while we try to go figure out, you know, what’s next.” As a board member that both, in retrospect, gives me a lot of joy and confidence in the outcome but were quite turbulent at the time. Maybe just kind of walk us through that process and where you ended up on the other side.
Guru: At that point, there was a choice to be made that either we could stand back and say, you know what, this was a fine run, let’s go and find a suitor for this and maybe roll it up into a larger company — could be Oracle could be whatever you name a large company, and there’s probably a space for a good dynamic pricing software. We said we could do that, or we could keep going. And for some reason, I was not there yet. Like, I think it was more personal than anything else that I was not there yet to call it a day. Maybe my biggest strength and my biggest weakness are the same is that I never give up. I never, never give up until we get through. I would call board members and call some friends and just talk to them about what was the right thing to do here. And the feedback is always what do you want to do? Where is your mind on this? And the fact that the board wasn’t pushing me towards a certain outcome or to get out or something like that just gave me the license to go back to the drawing board and think big. And that’s where we said, you know what, let’s come up with a different idea. So, we set aside this small team, we went through small product-market fit iterations. I still remember walking into this boardroom, and we were giving two updates. Update No. 1 was Boomerang Commerce. Update No. 2 was CommerceIQ. And one of the board members looked at me and said, “Guru, you’re trying to run a two-headed monster. It’s hard to build one company, and you’re trying to build two companies at once.”
And that was literally the board update. The board update was giving an update on two different companies because when you’re going after two different markets, two different sales motions, two different products. These are two different companies. And so, for us, it was a moment of reckoning. That was the point when we actually said, you know what, the energy and the gut feel, and the excitement is all around this small thing that we were bringing up. And the drudgery and the energy-sapping was this other business where the market was actually dying. So, what is the point? Let’s try to give up our ego on this and try to take two steps back to take five steps forward. And it was a license that the board gave me as a founder to go be able to do something like that, where we might either sell the company or we might bring this new thing up and potentially sell that as a business.
And it was a very personal decision for me that I wanted to sell the business and not the company because I knew that we could take this big, there was a lot of disruption to be made in the retail market. And right around that time, we started to look for suitors and we came across one of our longstanding customers, Lowe’s, came in and said, “Look, we just had a CEO change. And the entire management team is new. We’re looking to build a technology core and we looked at our kind of technology stack or vendors we work with, and you guys stood out. Are you guys looking to exit?”
And this was a conversation, by the way, I’d had six, seven months ago. At that time, we were not doing it, but I actually gave a call back to them saying now is the time to talk, and there was just a strong mind meld. So, we ended up taking our business unit, which is Boomerang Commerce and selling it to Lowe’s. At that time, absolutely, we could have exited, we could have done some distributions. In fact, I remember having a conversation with each of the investors on the board, and I laid it out saying, look, we don’t need all this money. We had raised only $20 million so far. We can certainly take 1X out and de-risks your position and stuff like that. And it was so great. Each one of the board members said, “I’m all in. I have a belief in you. I have belief in your management team. I have belief in the new product that you’re creating and the new market you’re going after. Let’s go for it.” So, we went for it.
Scott: So, you go build this team, you’re scaling up, there’s different capabilities you need when you’re five customers and a million of recurring revenue versus $10 million and a lot more customers. Now you do this sort of, okay — we got a bunch of money, a couple of customers and no revenue. But you had this history, and you had a management team who’d been through stuff. Were there any changes you needed to make in the team to have gone from zero to $10 and then $10 back to zero? It’s like, “Hey, who’s going to be coming along for the ride with me?”
Guru: Yeah, it was not much about the zero to $10 and $10 to zero. It was more about people who believed in the new vision of CommerceIQ or people who did not. Cause building a startup is freaking hard, and every day is a battle. Every day is a struggle. You need that core belief in the vision and the mission that you’re trying to solve for. But Boomerang Commerce was going after a certain market. CommerceIQ was not going after that market; it was going after something else — a completely new company. So, it was a moment where a lot of team members opted out, including management team members and C-level members, they said, look, “I joined you for solving the mission of creating an operating system for multi-brand retail. Brands do not speak to me. They don’t sing to me. And so, it’s time for me to head out.” There were some who I could see that it was not the right space for them, and I had to have the conversation with them and really asked them, are you really in this? Cause it’s okay if you’re not. And it doesn’t have to be today. We can find a good path out and hire your successor. So, there were all sorts of conversations that had to happen with the team.
I’ll say Scott, one of the most profound changes that happened was not with the team, the most profound impact was to me as a human. I came in from this Amazon school of thought. Everything for me was a math problem where I thought that everything could be solved like an analytical problem. You just gimme a problem, whether it’s a relationship problem or a human resources problem, or a market problem, I could apply analytics 101 and logic 101 and solve it. But as I look back and say what we had built as a company and what I, as a founder was, a good combination of IQ and LQ: intelligence quotient and learning quotient. What was missing, what we were not true to, was the EQ element. This pivot gave us the EQ. Gave me the EQ as a human — the ability to lead from the heart. There are situations where it was a bad idea to lead from a brain and solve it like a logic problem. For instance, somebody who had joined me with the vision, and I had sold this person the vision of winning the multi-brand retail market, and now I’m trying to logically explain why this was not a good idea and we had to go. It was not a math problem. It was not a logical argument. What I needed to show was empathy. What I needed to say to him or her in that meeting was that I understood, and I empathized with them, and I was sorry that this ended up happening. I did not foresee this. A lot of smart people did not foresee this, but it is right for the company to take this different path.
When I look at it and as they say, growth solves every problem, lack of growth also magnifies every problem. And there were lots of little problems that I had as a CEO, as a leader, as a human. And it just magnified the heck out of every one of those problems. And it was a very humbling two years in my life where I knew I wasn’t perfect, where I knew that there were lots of things that were wrong more than what were right. And I had to address them. And this was one of them. I had to really add that EQ element to my personality and to my leadership.
Scott: Yeah, I like that. It’s both the challenge of convincing people to come join you on a journey and the reality that that was the wrong journey and the self-reflection that it takes to embrace that and move on from that.
Guru: Now, so Scott, we talked about my journey going through the pivot. I actually was curious now that we are coming out on the green side, and hindsight is 2020, and we are in a good spot. I want to get your thoughts! What was going on in your mind and what was going on in the board’s mind? Outwardly you guys were doing a great job and giving me comfort, but what was going on in your mind when we came out and said, you know what. All the things that we raised money for. Forget about it. We’re going to do this new thing called CommerceIQ.
Scott: Yeah. I’m hopefully not suffering from revisionist or optimistic history. When you and I first got together to talk about Boomerang Commerce, which was the original name for the company, I was very predisposed to the idea. I felt somebody should be building the technology that helps Amazon win for the rest of the market. It’s like our former boss used to say, “Strong convictions, loosely held.” You can believe strongly in something, but if you have information that disproves or gives you doubt about that, you shouldn’t believe in it so strongly that you don’t recognize the opportunity or what you should be doing.
And so, I think like you, obviously, I was super sad when, you know, very large $3 million a year revenue customer turns into zero. Those were certainly scary moments for the company. I actually think the question of whether we exit the market was non-controversial from me or the board’s perspective. And between the conceptual decision, we should not be doing two things, we should only be doing one thing. It is fairly straightforward and obvious to say at a company at that stage, even though it took somebody to say it. Two, let’s go hire a banker and see if we can get full value for this product. And then three, you are having gone and developed those relationships, ahead of that process, resulted in what I would consider a 1-in-a-million type of outcome to sell, as you said, that part of the business and not the whole company and along the way, having done some research, some product-market fit, sort of stuff to say, “Hey, let’s go try this thing.” It’s like you said, what you want is the intersection of an A team with an A market. I felt like I had an A entrepreneur in a C market. I think the A entrepreneurs are harder to find than the A markets. And so, if we wanted to go after an A market, I’m sure we had plenty of good debate. But it was a very straightforward decision.
I did have questions from my partners like, “Hey, gosh, that’s a lot of money that you guys got. Maybe we should take some risk off the table.” And from my perspective, I felt like that was always an option. You and your team were good stewards of capital, which I think is the hallmark of a good management team. And so, whether we distributed cash the day the money hit the bank, or we did it a couple of months or years down the road because we didn’t see the opportunity, that was an option value that was always there. But the bigger opportunity was to figure out how to deploy it, to do something yet bigger. And so, the story’s not over yet, obviously, but I’m feeling pretty good about that decision.
Guru: That’s great. It’s good to understand the board dynamics at that time. Thanks for sharing.
Scott: Well, let’s fast forward to sort of the early innings of the CommerceIQ journey just by saying. You know, this very early idea in a customer to turn into a bunch more customers, your first $10 million of ARR in that business, which is now many multiples of that. And I think somewhere in the neighborhood of $200 million of total capital between the original business and the new business raised. And so, I mean, I think that’s just something fun to reflect on and feel great about. You can look at the last couple of years and say, well gosh, COVID was a big tailwind for e-commerce, you know, in some ways, clearly your customers were beneficiaries of that, CommerceIQ is a beneficiary of that because you, your customers needed algorithms to help scale the business, to make their business more profitable on Amazon and Walmart Instacart other places. And here we are in 2022, and there’s somewhat of a reversion to the mean of e-commerce, right? The growth rate was double. And now maybe it’s back to where it was, or maybe slightly elevated from that. And then you pile onto that the potential for a recession — if we’re not there already — higher interest rates, and that’s potentially having an impact on consumer spend. Obviously, the fundraising environment isn’t where it was a year ago. You didn’t have to navigate that in version one of the company. You’re having to navigate it now. Just tell us about how you’re thinking about it. You’ve got plenty of capital in the bank, you’ve got plenty of runway, but the choppy waters may be here for other reasons.
Guru: Yeah. I think the future of CommerceIQ is very exciting. We are in a very solid spot as a company. Of course, there’s going to be challenging, but one of the things that we definitely got right was the product-market fit on this one. And what we also got right was the quality of the market. Our customers are loving the product. Our net dollar retentions are off the charts in the top decile of our industry. And we also have built a company which has got a great cash efficiency ratio. As we look forward in the business, one of the things that is very exciting is this is a recession — and the recession is definitely going to happen, in my opinion, if we’re not in that already — that this is a recession where there are a certain set of markets which will continue to thrive: low-cost groceries, healthcare, discount retailers, children’s goods, pet industry, these things, usually they do a really good job in recession. We are serving, according to a study that I got the other day, we are serving eight out of the 10 markets that are expected to do well during a recession.
Scott: Yeah. I haven’t heard that stat before.
Guru: That’s a great place to be in for us as a company. We do have to slightly change how we talk about our value proposition. And in fact, even the focus of our value proposition. In a growth market in e-commerce, every brand was looking for three metrics: growth, growth, and growth.
And now, in a recessionary market, they’re looking for three metrics growth, profitability, and cash flow. So, we are having to change our value proposition by, say, 45 degrees. And this is not just marketing messaging and all that. I’m talking about what our customer success teams are working on and focusing on what our product team is focusing on, the product roadmap for the next few months, and stuff like that. We are definitely taking a slight shift to navigate that sort of dance that we have to play with the economy and help our customers win in this market. In a lot of ways, I’m really looking forward to the next two years, whether it’s expansion or recession, because of the strong foundations we have built. And frankly, it gives us a golden ticket for the next two years where new startups are probably not getting funded as fast as they were before. So, it’s a great opportunity for companies like us to deepen our moat, maybe pick up a few companies on the way and acquire them and also hire some great talent in this market. So, it’s actually very exciting. All we need to do is just stay true to our No. 1 leadership principle, which is customer obsession — ensuring that our customers are winning, they’re taken care of, and we are solving the right problems for them in the next two years.
Scott: I think that’s, that’s great. You know, you’ve got great dollar efficiency as a business and a very disciplined management team. I think you’ve got a great product roadmap, as you alluded to. You’ve got the balance sheet to go do some interesting things. You’ve got a very clear vision of where you want to take the product, and now you can go build a bunch of stuff or you can go buy some things as well. And you just closed your first acquisition. So, you know, gone from selling a piece of the business early days to adding somebody else’s business to the platform. How do you as a CEO think about building things versus buying?
Guru: This may not be the answer for every company or every CEO, but the way we think about our business is we are a vertical SaaS company. We are not a horizontal SaaS company. Horizontal SaaS companies are companies like, say a New Relic or Apptio in enterprise or Salesforce is a classic example. Like anybody who has a sales team can use a Salesforce software or anybody that has developers can use New Relic. But for us, we can only sell into the retail market. We don’t sell into the insurance, finance, or government, these are very large markets, which we don’t touch at all. And so that’s the definition of a vertical SaaS company.
And one of the things that I, as a vertical SAS CEO, or we, as a vertical SaaS company, we have to go solve a broad range of problems for every single customer in our market. That’s one of the idiosyncrasies that we cannot take one specific problem and solve it really well and go sell to thousands if not millions of companies, which is what a horizontal task would do. In a vertical, SaaS is sort of taking a slice of the market and going, solving a broad range of problems. Now we cannot be a small sliver for a small market. Then you are just building a small company, right? If you are building a multibillion-dollar company, which we are, then you are to do one of the two, right?
We are certainly not doing horizontal, we’re going vertical. We’re going deep and deep vertical. And what does that mean? That means that. We are not just solving a digital shelf monitoring problem. We’re not just solving a supply chain problem. It’s not just solving the retail media problem. We’re solving all of the above. We have to solve everything for this market.
And another idiosyncrasy of a great vertical SaaS business is that it’s a winner-takes-all market where we have to hurry up and invest strategically and go take the market. One thing we don’t have is time. We are already at a pretty good level of market share. I want to get to a point where we are 60, 70% market share in our market. And frankly, being a product-first and engineering-first CEO, it is hard for me to have that come-to-Jesus moment — that realization of, “Okay, I should go buy a product as opposed to building it in-house.” But one of the things that we do look at is how we can be open-minded to other products that are best-in-class, where customers are loving them, and frankly, can you convince that team to come in and join the common vision. And does it make financial sense for both parties to essentially go do that?
In our case, e.fundamentals was a great marriage from that perspective. The moment I talked to John Markman, who’s the CEO, both of us knew that there was something in this. And we were able to convince both our management teams very easily because we knew that there was value in putting one and one together. We were strong in North America. He was strong in Europe. We are strong in retail operations and supply chain, and retail media. He’s strong in digital shelf measurement, which is also a budgeted software. So, it was sort of complementary in almost everything that we do. I would’ve definitely not gone ahead if I was not convinced about the product if I was not convinced about the team. But in this case, the product is world-class, the technology is world-class, and the team is world-class. That sort of just gave us the confidence to move forward. Very exciting to have done this. And we are really looking forward to a fantastic journey together.
Scott: Thanks, that’s really cool. And maybe a good capstone to our conversation. You go from building a company to selling part of the business, to rebooting, building a new business to bringing in another company. And I know you’ve got a long road ahead and just personally really enjoyed our partnership together over the years, and I’m looking forward to many years to come. So, thanks for spending some time with us today. I know just as your entrepreneurial journey is such an interesting one, I think it’s really helpful to share with others.
Guru: Thank you, Scott. Thanks for having me. And certainly, thank you more than that for a wonderful partnership so far.
Coral: Thanks for joining us for this week’s episode of Founded and Funded. If you’re interested in learning more about CommerceIQ, please visit CommerceIQ.ai. Thanks again for joining us, and tune in in a couple of weeks for our next episode of Founded and Funded.