KnowBe4 CEO expects company will double in size by 2023

What does a company do when it’s running out of room for its rapidly expanding workforce?

For Stu Sjouwerman, CEO of KnowBe4, the next step may be to build a new office tower or buy an existing one in downtown Clearwater.

Any move like that is likely a year or two away, but it was on Sjouwerman’s mind during a wide-ranging interview with the St. Pete Catalyst about KnowBe4’s growth.

“We like it here. We’re staying. We’re expanding. KnowBe4 is typically what the mayor and city council like. They like high-paying clean jobs in a downtown. So from what Clearwater city fathers like to see, that’s exactly what we’re building here,” Sjouwerman said.

KnowBe4, a cybersecurity training firm, employs 752 people, some working in newly established overseas offices, but the majority working in the downtown Clearwater offices. The company has 100,000 square feet on three floors  at Clearwater Tower. at 33 N. Garden Ave., and five floors just across Cleveland Street at Atrium at Clearwater. It’s currently renovating additional space on the lobby level of the Atrium, turning a former SunTrust Bank branch into its reception, recruiting and HR offices.

That new space is not far from the 10 by 10 foot “broom closet” Sjouwerman rented in the Atrium in 2010, when he launched KnowBe4, a one-man operation with a mission to take on the “bad guys” who were manipulating corporate employees with bogus emails and wreaking havoc on IT operations.

Working  with corporate clients to help prevent cyberattacks by training their workers to spot threats, KnowBe4 has grown into one of the largest privately owned companies in the area, with more than $100 million in revenue. It’s also the area’s first true local unicorn – a designation for a tech startup valued at $1 billion or more — after getting a $300 million investment in a funding round led by private equity giant KKR in June.

“Of all companies that are founded, only 1 percent get venture capital. And of the venture capital-backed companies only 1 percent makes it to unicorn status. That’s a nice milestone,” Sjouwerman said.

Hacking humans

KnowBe4 is the fifth startup for Sjouwerman – whose last name is pronounced “showerman” — and he said it’s his final one, but also his most fun startup.

He previously co-founded Sunbelt Software, an anti-malware software company in Clearwater that was bought by GFI Software in 2010. Sjouwerman walked away with an eight-figure payout. He tried retiring, but his wife kicked him out the door, he said, telling him to “go do something.”  That “something” was rooted from what he had seen at Sunbelt.

“We had a floor full of tech support people and these guys were getting trouble tickets all day long with infected work stations. We were pulling our hair out, saying ‘What on earth is happening. This is the best anti-virus ever, because we built it and still these machines were infected,’” Sjouwerman said. “We started to do some research and figure out what’s happening, and concluded it was social engineering. Essentially the bad guys were hacking the humans, manipulating the employees to click on something or open an attachment and in that way let the bad guys in.”

There were a couple of companies around in 2010 that worked with major corporations to thwart social engineering, but no one was focused on small and medium-sized businesses, so that became Sjouwerman’s target initially. The company moved into the enterprise space about five years later, and now has more than 26,000 clients, adding 600 to 800 clients a month.

Scams

Combating social engineering is a new category, Sjouwerman said.

“Everyone who has anti-virus (software) and has a firewall needs this too. Ninety percent of this market is still open. The VCs call it green space,” he said.

Internet scams have been around as long as the internet has, but people still fall for them.

“The bad guys are getting sophisticated at a rapid clip. The Nigerian Prince that you got 10 years ago, who needed a small prepayment so they could take $10 million out of the country? That same Nigerian scammer is now sending you an email from your own CEO, saying are you at your desk, I need some gift cards for some of my customers, could you please go and buy some and email me the numbers? Same games, but way more sophisticated,” Sjouwerman said.

KnowBe4 focuses on training workers to spot scams because it is an easy way to thwart hackers.

“Bad guys are business people too. Their time is money as much as anyone else. They go for the path of least resistance which is hacking the human. It just takes three minutes, whereas hacking software might take days at least, and hacking hardware takes a month. So they go for the best bang for their criminal buck, which is just hacking humans, or social engineering,” he said.

Training works, according to the KnowBe4’s new “Phishing by Industry Benchmarking Report.” Before training, almost 30 percent of workers were likely to click on a suspicious link or email or obey a fraudulent request. After 90 days of combined computer-based training and simulated phishing security testing that percentage was cut in half, to 15 percent, and after 12 months it dropped to 2 percent.

Source: Phishing by Industry Benchmarking Report 2019

KnowBe4 is now expanding its offerings outside the United States, where the market is ripe for services.

“The United Kingdom is maybe one year behind [the U.S] and the rest of Europe is three years behind. For them, the inflection point is now, when they start to realize we have a problem. Those markets are just opening up today,” Sjouwerman said.

The company has offices in England, The Netherlands, Germany, South Africa, Brazil and Singapore. Dubai, Australia and Japan are next in line.

Secret sauce

Global spending on cybersecurity products is expected to reach an all-time high of $124 billion in 2019, according to Fortune, which cited research firm Gartner.

Within the industry, demand is high for training products, Fortune said.

“Cyber threats are not going to be solved with technology alone; the human side of the equation matters and KnowBe4 is making important contributions in this area. We’re very excited to watch the company continue to scale globally and meet market demand for security awareness training and testing that actually works,” said Patrick Devine, principal at KKR, when the deal was announced.

Sjouwerman isn’t concerned that having a private equity powerhouse on board will change the culture at KnowBe4, where workers gather for a daily morning meeting led by Sjouwerman (it’s on video for those employees who can’t get there in person) and where electronic whiteboards throughout the offices prominently display financial information and other metrics that some companies would keep closely held.

He said he’s told his outside investors that company culture is part of the “secret sauce” and “if it ain’t broke, don’t fix it.”

“It’s not broke and I’m not letting anybody fix it because what we are doing works.”

Private equity investors always have an exit in mind — a sale to a bigger company or an initial public offering — but KnowBe4 doesn’t need to raise money through an IPO, Sjouwerman said. The company has been cash-flow positive almost from the start.

“You always look at your strategic options, but there are no immediate plans for anything other than grow like crazy,” he said.

He expects KnowBe4 to be twice its current size and have 1,500 employees by 2023.  That’s what’s prompting consideration of building or buying an office building.

He’s committed to staying in downtown Clearwater. He serves on the Clearwater Downtown Development Board, an elected position, and he’s also on the executive board of the Clearwater Downtown Partnership, a public-private partnership that fosters a thriving downtown.

There’s still plenty of room, he said, pointing out the window of the 12th floor conference room at KnowBe4’s headquarters, with a spectacular view of the Intercoastal Waterway and the Clearwater Memorial Causeway leading to the beach.

“There’s tons of green space here, plenty of room,” he said. “I need another 900 parking spaces. It’s nice to have problems like that.”