How Segment CEO Peter Reinhardt built a successful company after crashing and burning twice

Segment

• Peter Reinhardt, CEO of data analytics company Segment,
  crashed his company twice before stumbling on a product that
  actually worked.
• Reinhardt said he learned an important lesson about
  persistence from his experience.

In spring 2011, Peter Reinhardt and his two college roommates
came up with an idea that they envisioned would spur deeper
engagement in their classes at MIT. 

“We decided to build a classroom
lecture tool: a button that a student could push in class and let
the professor know exactly how they were confused,” said
Reinhardt.

On the merit of their idea, Reinhardt and his co-founders were
accepted into an upcoming program from Y Combinator, the Silicon
Valley-based incubator. 

“They let us in, they funded us,
and over the course of the summer, we built out the product’s
functionality,” said Reinhardt. Before their product launch,
Reinhardt and his team raised a modest funding round of
$600,000.

They returned to Boston, where
they planned to introduce their product to classrooms at a number
of universities. 

But the rollout was not at all
what Reinhardt expected. 

“It was a total disaster,” said
Reinhardt.

The issue? No one in class was
using the product.

“We’d stand in the back of the
room and try to figure out why people weren’t using it,” said
Reinhardt. “Every single student’s laptop would be open, but
they’d be using Facebook or Flickr or Gmail. We were horrified.
The professors were very upset.”

Again and again, Reinhardt found
that students weren’t interested in using the product he’d spent
all summer building. With little market potential for the
classroom survey tool, Reinhardt and his team decided to abandon
the idea. This involved more than one uncomfortable phone
call. 

“We called back all of our
investors — all of the people who had wired us
money only a few weeks earlier to say, ‘Hey, turns out that this
was a terrible idea. Do you want your money back, or do you want
us to try something else?'” said Reinhardt.

While a few people asked for a
return, most of the team’s investors said they still believed in
Reinhardt and his co-founders, and urged them to return to the
drawing board. 

After much deliberation, the team settled on their next idea: a
powerful data analytics tool that analyzed software programs.

But this product also failed to take off. 

“People didn’t want to believe data that came from a machine,”
said Reinhardt. “There was no narrative, and the product failed.”

At this point, Reinhardt and his co-founders had been working on
their company, called Segment, for nearly a year and half and
blown through $500,000 of their investors’ money. Again, Segment
had more bad news for its investors.

Reinhardt made a visit to Y Combinator co-founder Paul Graham to
tell him that Segment had once again failed. As Reinhardt
recalls, Graham wasn’t too pleased at the news.

“We were walking around a little cul de sac in Y Combinator’s
Mountain View office, and we told him,” Reinhardt said. “He came
to a stop, turned around, and said, ‘So, just to be clear, you’ve
spent half a million dollars and have nothing to show for it?'”

After an uncomfortable pause, Reinhardt said he replied, “‘Well
yeah, I guess that’s true.”

Graham’s inquiry suddenly put Segment’s ambition into
perspective, said Reinhardt.

At that moment, the cold truth was exactly “the shock we needed,”
Reinhardt said. 

Reinhardt and his co-founders decided to revisit a few ideas
they’d had along the way in building Segment. One idea they
re-considered was an open-source data analytics tool that could
blend seamlessly with other software extensions — 100 lines of
code they’d written in their early days at Y Combinator. 

At first, Reinhardt was totally against the idea. 

“My co-founder said, ‘I think
there’s a big business in this,'” Reinhardt said. “I said,
‘That’s literally the worst idea I’ve ever heard
of — it’s 100 lines of code and open source.
You can’t build a business from this. We fought all day long. I
was racking my brain for hours, trying to think of ways to kill
this idea.”

Finally, Reinhardt gave in. His
company was swiftly running out of time and money, and he was
ready to give anything a chance. 

“We built a beautiful landing
page and at the bottom we put an email for a hosted version of
the service, an interface tool that you can turn on and off,”
said Reinhardt. “We put it up on [Y Combinator’s social site] Hacker News and waited to see what happened.”

Immediately, inquiries began
streaming in, said Reinhardt.

“We got a few thousand stars, a
few thousand emails, tons of people demanding access to the beta
product,” said Reinhardt. “I was like, ‘Sorry guys, guess I was
wrong. There’s something here, after all.'”

As Segment began work on the beta product, the company began
attracting more interest.

“In 18 days, we had 70 companies sign up,” said Reinhardt. 

Since then, Reinhardt’s tiny, problematic startup has bloomed
into a full-fledged company with more than 250 employees working
out of offices in San Francisco, New York, Vancouver,
and Dublin.
Segment estimates that more than 15,000 companies use a
hosted version of their software, and that more than 300,000
regularly use their open-source data analytics
framework. 

The fast growing company, which has so far taken in more than
$100 million from blue chip investors including Accel, GV
(formerly Google Ventures), Kleiner Perkins, and Thrive Capital,
has proved a pleasant surprise to those investors who were
previously ready to write Segment off as a loss.

Reinhardt says Segment’s success is a matter of persistence and
thinking outside the box. However, he said that he probably held
onto the earlier faulty iterations of Segment’s previous products
a tad too long. 

“People tend to go way to long
before they kill a product that doesn’t work.” said Reinhardt.
“You have to take a step back and ask, ‘What does the world or
market actually need?'”