Don’t stop learning: How Cornerstone kept scaling, w/Adam Miller

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1:17In 2005, the company had a near-death experience. I had hired a boutique investment bank in L.A., got called into a meeting with them, and I went to the office, and the main guy there says, Adam, you know what? It hasn't worked out as planned, and we're not going to be able to do this anymore. And I thought, oh, shit, we are screwed. This was back when Adam Miller was CEO of Cornerstone. That's the educational technology company he founded in 1999. They had already weathered one dot-com burst. Now, after years of growth, they were running out of money again. I got one of our existing investors to put up some money, but he said it'll only do it if we raise a million dollars.

2:10And then I went to every single person we knew. I had raised$350 ,000. I was$150 ,000 short. And then I got$50 ,000. And then I was$100 ,000 short. And I just could not get the last$100 ,000. The gravity of the situation really hit Adam when he got a call from his co-founder and CFO, Perry Wallach. Perry said, it's over. We're done. Payroll is due tomorrow, and we miss payroll. And I'm like, oh, crap. And I was sitting at lunch. I was totally depressed. My friends were like, what is wrong with you? I told them. And they're like, how badly do you need this money? I'm like, I really need the money.

2:57And they said, all right, you can call this guy. But only call him if you really need the money. You have no other alternative. These guys had a little bit of a gambling problem. and I call him up and he has me come to his office. This was a Midtown Manhattan one room office. He wasn't at a company. This was definitively not a bank. This guy was a loan shark. He didn't give a crap about the company, but he was asking all these questions about me. And he said, yeah, you know what? I think you're good for it. And we often talk about investing in the person, but this was really different. This is different.

3:44This is a different version of investing in the person. Right. Is this guy going to head out of town or is he going to show back up and do I have to break his kneecaps to get what I need? So I go to this guy, sign the deal. It was the highest interest rate you would ever pay on money. He wires the money. We pay payroll. And then like three days later, we paid the guy back. Adam Miller never had to borrow money from a loan shark again. This wasn't the only time his company faced a near-death experience. It took a lot of scrappy solutions to build Cornerstone into a multi-billion dollar business.

4:24Adam's story is a masterclass on how to not only survive, but to scale in the face of near disaster. He shows that persistence, combined with calculated risk-taking, builds a resilient business that can weather the myriad unexpected challenges every company inevitably faces. You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. And then you go back to, this is totally going to be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right.

5:01Oops. working as a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it. This is Masters of Scale.

5:22I'm Jeff Berman, your host. Adam Miller founded Cornerstone On Demand in 1999. The initial idea was to provide busy people with remote learning options that could further their careers. At first, they did that by mailing out disks that customers would load onto their computers. Netflix 1.0, but for education. Sounds like ancient history, right? But Cornerstone evolved alongside the internet, as pretty much everyone got online. They became a global leader in on-demand education and training, with huge clients such as Dell, Walgreens, and thousands more. Today, Cornerstone has roughly 125 million users across over 180 countries.

6:04After more than two decades leaving the company, Adam sold Cornerstone for$5.2 billion in 2021. He has since turned to philanthropy, focused on solutions to the world's most intractable problems, from gun safety to climate change. And that work relates back to the problem-solving roots of his company, Cornerstone. Let's return to the 1990s, when Adam Miller was a business school student and law student with an idea to make adult education more accessible through home computers. Interestingly, adults have the least access to education because they often are working nine to five or more, and training can be really expensive.

6:48A lot of people can't afford it. The original name of the company was CyberU. This is back in the day of cyber everything. The idea was really premised on leveraging the technology to help people learn things. It was self-paced. It was easy to access and it wasn't expensive. And you started as a direct-to-consumer business, right? You were doing a B2C company? CyberU was intended to be, at the time, what they called a intermediary. We're going to sit between the sellers of education, like universities, and the buyers of education who would be adults. The idea we came up with was using CD-ROMs to train adults at concepts that were difficult for adults to understand, like Wall Street.

7:32Gotcha. So this is almost like the origins of Netflix, where it's like, we'll send you. Exactly. Yeah. Exactly. This was pre-streaming, really pre-web. By 99, the consumer internet had exploded. And there was a lot of opportunity out there. but bandwidth still was not very good. So I was watching what was happening with the cable modems and DSL and thought, I'll start the company when we're about two years away from full broadband in the home. That seemed to be the right time to start a company, get it going, build the business. And over a two-year period, you would have product that could be delivered over the end.

8:14Right. You're basically looking for the wave that's coming and you want to catch that wave that's coming in. Exactly. Right. Okay. So I was working at an investment bank at the time. So I went to tell my boss that I was starting this company. And I had seen that anybody who had left the firm was immediately escorted by security guards out of the building because investment banks have confidential information. And so they're very concerned about people having access to the information and taking it with them. So it's like being perp walked basically out of the building. The second you resign. Yeah.

8:54So I'm fully prepared for it. And I go to my boss and I say, I'm leaving. Why are you leaving? I'm going to start a company. He says, oh, we all knew you were going to do that. How much time do you need and how much money are you trying to raise? Wow. And so I tell him, I probably need a couple of months to do the business plan, and I probably need a few hundred thousand dollars to get this going. And he said, okay, great. We'll give it to you. Wow. So no security guard showed up. I never left the office. I wrote the business plan while finishing up work, and my initial capital came from everybody I worked for.

9:41Every single person in my chain of command invested in the company. They invested personally. This wasn't— And the analysts who worked for me also put in$5 ,000. Wow. That's quite a vote of confidence. It was incredible. But it was very, very misleading for me. Because that start was so incredibly easy. And that was the end of it being easy. Adam left day-to-day office life to build his company. He had financial backing, but no staff working alongside him. I was literally home alone in this one-bedroom apartment trying to get this company off the ground. And so I came up with this pattern where every day I would go to Staples and buy something.

10:27I usually only buy one thing. It made me feel like I was starting a company. Like I was doing something business-related. You ever go into Staples? Uh-huh, sure. It's like a business store. Yeah. So I went there to buy business stuff. Yeah. I didn't even know what I was supposed to be buying. It didn't matter. It didn't matter. It gave me purpose. It gave me something to do every day. But it didn't take long for Adam to realize he needed more than a daily dose of Post-it notes and binder clips to build his business. It was time to start hiring a team. we were hiring predominantly for potential, not for experience.

11:12Because nobody had experience doing B2B software. So we had to hire for potential. And that, I think, served us very well. We had people that were able to scale with the company because they were curious. They kept learning. These were high potential people that were ambitious and willing to take chances. and take feedback. We hired web developers to build a website. We hired a team of students from UCLA and USC who sat at these folding tables with folding chairs in this one-bedroom office on Ocean Park, and they would surf the web looking for any online training that was out there. with the goal that we would tabulate and simplify the ability to search for online courses.

12:06That was the original consumer idea. Marketplace for education. Marketplace for education, exactly. What today would be like Udemy or Coursera. But back then, nothing like that existed. As a pioneer in online education, Adams Company soon piqued the interest of AOL. This was the year 2000, and AOL was still the biggest fish in the internet service provider pond. Imagine the clout of Google and Amazon combined. AOL invited Adam to enter a competition. Cornerstone could become a partner in a new AOL learning center. It was an opportunity to reach millions of new customers. But there was a catch.

12:46If they won, Adam would have to pay AOL to seal the deal. Our general counsel at the time, Steve Simon, and I were sitting in a room in San Francisco with a great view of the bridge. We're in this big conference room, and the people from AOL came in the room, threw down the contract, and said, we've been talking about this long enough. You have two hours to sign, and walked out of the room. Wow. Now, they had already been notorious for doing things like this. But it's one thing to hear about it. It's another thing to be in the room. Especially when it could be the make or break for the company.

13:25It was absolutely the make or break for the company. And I remember pacing the room, looking out at the bridge, and I turned to Steve and I said, you know what? This just doesn't feel right. What didn't feel right? it was too expensive, the way they were treating us, risking the entire company on this one deal. I thought, this is just not the right move. And we left. We never said goodbye to anybody because nobody was in the room. We don't know where they were. We just left. Two weeks after we walked out of that conference room, the internet bubble started to crumble. and about a month later it burst.

14:10And had we signed that deal, we definitely would have been out of business. That would have been the end of the company. So I remember we went to Big Dean's, which is a bar on the beach by the Santa Monica Pier. And we sat there all day thinking about, okay, what do we do now? The AOL deal was off the table and we didn't really have any business customers at the time. And we didn't have any capital. We had the same few hundred thousand dollars that we started with, but we were burning it. And there was very little money left. So we started begging for money. And this was the beginning of seven years of begging for money.

14:50Friends, family, VCs, strategics, corporations, anybody that would meet with me. And so went back and forth, flying back and forth, maxing out credit cards, any way to get money. There were an enormous number of no's. And it does impact your confidence, right? If you reject it over and over and over and over again. While slogging through years of constantly seeking and failing to land investment, Adam found success on another front. He was building great relationships with a few very large organizations. They wanted a better way to train and develop their workforces. These weren't their paying customers yet, but they were providing invaluable insights as Adam's team refined its offerings.

15:41These were the big banks, the big insurance companies. They would tell us something, and two weeks later, we had built it. Here you go. Here it is. We would go to these meetings in New York. I'd fly back to L.A. I would draw on cocktail napkins what the screen should look like. I'd hand it to the developers, and they would build it. I mean, I'm struck that your customers were really defining your product roadmap for you. They were handing it to you. They were designing the product. We're thinking we have like 20 people and they have 20 ,000, 50 ,000, 75 ,000 people. They're never going to buy from us.

16:21But actually, what started to happen after many months of doing this is we go to these meetings and they would say, wow, you guys really listen. And then they would start to say, we could really use this. And they would say, can we get this? And we were terrible at sales. We didn't understand that they were literally saying that they would potentially buy it. Please let us pay you for it. I remember the first time somebody said, we're doing an RFP. Can you fill it out and come back to us? We had no idea what an RFP was. It's a request for proposal that a business will give to a different business to solicit products and services.

17:04We didn't understand how that worked. There was no chat GBT to ask. You had to figure it out yourself. In 2001, Adam's business was gaining serious momentum. They brought e-learning and efficient HR management to the corporate world, attracting big-name Fortune 500 clients, including Wall Street banks. We had developed this great pipeline of financial services firms on the East Coast, mostly in New York, that were going to be the turning point for our company. And then 9-11 happened. And our entire pipeline went away. I got frantic calls from our investors and advisors who were all in New York.

17:50they all said, you got to go into hibernation mode. Cut the staff. I mean, we had barely any staff. Cut the staff. You don't have enough money to keep going. You're going to go out of business. On September 14th, I watched The West Wing that night. So The West Wing was this old show. Martin Sheen was the president. This was one of these shows where he had a huge decision to make. He was in a church trying to figure out what to do, and he made this big decision that went against what everybody had advised him to do. I know the episode he's talking about, and it does have one of the greatest pep talks you've ever heard, where one of the president's oldest friends convinces him not to shy away from hard problems.

18:36Adam was inspired. He still believed fiercely in Cornerstone's mission. Even if the world had been turned upside down, he refused to give up. on the 15th, I walked into the office and I said, we're hiring. I thought, look, there's only two scenarios here. There's a scenario where the world comes to an end. These markets don't come back. We're not going to win any of these deals. We're going to go out of business. No matter what, whether we hibernate or not. Whether we hibernate or not. Yeah. Or actually, we're going to close some of these deals. And if we don't have the staff, we're not going to be able to perform on the deals.

19:18And they'll fire us and we'll go out of business. So I'd rather go out of business trying than not trying. Let's burn the boats. We're going to do this. We're going ahead. We had four deals that we were working on at the time that were all close to Signature. We ended up closing three of those deals.

19:41Adam's decision to hire during crises, defying the urge to hibernate, paid off. Coming up, I talk with Adam about surviving market crashes, IPOs, and pandemics. Plus, the recurring dream he could not shake. Real leaders don't back down when the stakes are high. They innovate, they push forward, and then they take the stage at the Masters of Scale Summit. Join us in San Francisco, October 7th to 9th, to hear from the CEO of the New York Times, scientists using cutting-edge technology to find cures, the leader of crypto powerhouse Coinbase, a retired four-star general, and many, many more. Apply now at mastersofscale.com slash apply25.

20:27That's mastersofscale.com slash apply25. If you're ready to take your startup from idea to impact, then AWS is your launchpad. From data storage to machine learning to secure app hosting, AWS gives you the tech trusted by the world's fastest scaling startups. And here's the best part. Join AWS Activate today and you could score up to$100 ,000 in AWS credits tailored to your stage and network. Go to aws.amazon.com slash activate and start building. Expanding your business in the U.S. can feel like a maze. Every state has its own payroll, benefits, and compliance rules, which can pull your focus away from growth.

21:13That's why founders use Deal. Deal is the professional employer organization, or PEO, that gives you a dedicated HR expert plus Fortune 500 level benefits for your team. The National Association of PEOs says businesses can grow twice as fast if they use one. So if you're scaling, make it simple with Deal. Go to deel.com slash mos and get up to three months free. Welcome back to Masters of Scale. We're exploring the story of how Adam Miller built Cornerstone into a multi-billion dollar business. You can find this full interview and more at the Masters of Scale YouTube channel. By 2005, Adam was taking a slow and steady approach to scale.

22:02We were doing 60 % growth a year. So every two years, you're almost tripling. Pretty good. It was pretty good. But we're growing very linearly at first because we couldn't forward invest. We had no capital. So the business became very efficient. We were essentially operating a break-even from the very beginning. And we basically were building the company off of sales. So every time we sold, we'd hire another person. Every deal we did, we'd hire more people. If the revenue became working capital, why did you end up raising venture? We were able to continue to build the business simply by hiring where we absolutely had to hire.

22:46But it was also inefficient. We knew we could grow faster. We knew we could sell more. And ultimately, we were in arms race with some pretty big companies. And so we needed the money, not to mention the corporate viability issue that we had perpetually. Right? We had no capital. Our balance sheet was terrible. We finally raised venture capital. Bessemer led the round. Byron Dieter led the round. It was his first true cloud deal. And we ultimately became his first unicorn. Fueled by that infusion of money, things started to scale in a huge way. Six-figure deals became seven-figure deals. Adam kept costs in check.

23:32Retention of clients was high. Everything was moving up and to the right. But then, in the spring of 2008, Bear Stearns goes under. Yeah. And then a little bit after that, Lehman Brothers goes down, and you have the financial crisis. Right. It looks like the world's ending again. It looks like the world's going to end. Now, we still had capital, so we weren't running out of money, but we had a board meeting. At the board meeting, we go over our projections, our forecast, and they're like, no, no, no, no. Do you understand what's going on with the world? We want to see a financial forecast assuming zero sales.

24:11We're like, what are you talking about? We're selling every day. They said, we don't care. We want worst case scenario, assume zero sales. Responsible board inquiry. So we have another board meeting a few days later and they say, okay, this is the forecast we want to use. You're running out of money. We said, we're not running out of money. We're doing fine. But if the world's ending, we are. They said, you need to go raise money. And you're telling me I have to go do it from other VC firms, even though you guys could invest. And they said, yes. I said, explain to me how that makes sense. They said, you're our best performing portfolio company, so you're the only one that could raise money from other people.

24:53We need to save our money for the other companies. I'm like, all right, now I know why people don't like VC sometimes. You might remember this. Sequoia had put out this very famous brief. Yep. It was one of these early social media posts that went viral, talking about what to do in a downturn. Winter is coming. Winter is coming, how to manage a recession. And it was cut your people, prepare for the worst, take action early, do it in full, don't do it piecemeal. If you weren't in the business world then, you may not appreciate how dire everything felt during the crash in 2008. Sequoia, one of the biggest and best-known venture capital firms in the world, was not alone in warning that the sky was falling.

25:43That viral brief Adam mentioned from Sequoia was called RIP Good Times. You can find it online, and we're linking to it in the show notes. It is full of ominous predictions and gruesome bar graphs. There's literally a slide that just says, Death Spiral, and has a skull and crossbones on it. This is the mood of the market when Adam is being told by his board that he has to go raise more money. So who is he supposed to go ask for that money? If you can believe it, Sequoia, the very firm that is proclaiming winter isn't coming. It's already here. And I thought, well, they're definitely going to cancel the meeting.

26:20And the meeting never got canceled. And I went to the meeting and I said, why are we even having this meeting? You just put out this manifesto about how to cut everything. Why would you possibly invest right now? And they said, in our experience, the best companies grow in good times and bad. Sequoia was right, and it was a critical learning experience for Adam. We ended up growing 60 % that year, and we never used a dollar of the money. But you had it. But we had it. And if the first job of CEO is make sure you don't run out of money, you had a board that was really protecting you there and believing in you, notwithstanding they're not investing in that moment.

27:04And it, you know, proved the point, Raise money when you can, not when you need it. Yeah. So take us through going public and then what happens from there? I had always wanted to go public because when I was a kid, my dad taught me how to read the stock charts. Back then it was in the newspaper. This is the breakfast table in Jersey with dad looking at the newspaper. Working. And he would teach me like how to invest and how the stock market worked. And I always wanted a four-letter symbol on the NASDAQ because Microsoft and all the other companies that were on the NASDAQ all had four letters. And that was always my dream.

27:49And so when the time came to be able to take the company public, I was super excited. This was kind of a dream that was about to be fulfilled. But we were in a race at the time. There had already been a couple of public companies in our space. We were on the smaller side of those four. And I knew that only one of them was going to be able to go public. And the rest of them would probably get acquired or merged. I also believed that you had to have a top tier offering. So you need a top bank. And we got Goldman Sachs to lead the round, to lead the IPO. and we ended up going public in March of 2011.