Thursday, February 26, 2015

The SaaS Billionaires and Naysayers

If you are on your journey as an entrepreneur to truly build something new and revolutionary, you will hear a lot of naysayers along the way. Today, Salesforce and Workday both announced their financial results — once again showing that they continue to grow as part of the larger movement to SaaS. Salesforce is now generating almost half a billion dollar a month in revenue and still growing over 30% year over year which is just remarkable. Workday is growing even faster in %-age terms and is the second largest independent SaaS player. But this journey was not easy for the likes of Marc Benioff or Aneel Bhusri.

While the big legacy vendors are now talking and acquiring SaaS, this is what we heard over the last 10 years:

  1. Multitenancy is irrelevant. (And then they tried all kinds of mega and virtual tenancy stuff only to learn that its a hugely important piece.)
  2. They said — Cloud is “just” a deployment choice. Customers want “choice” of on-premise, hybrid and cloud.
  3. They said — you can serve SMB on multi-tenant cloud but never “real” enterprise.
  4. They said — cloud is not secure. Its secure here but not in Europe.
  5. They said — “roach motel” of enterprise software.
  6. They said — yes, revenue but really NO PROFITS at @workday and @salesforce. See the numbers now.
  7. They said — cloud is all about virtualization of data centers. And public cloud is a ‘phase’.
  8. They said — no Startup will ever go IPO on a 3rd party cloud platform.
  9. They said — legacy software companies can “simply” start hosting. (Yes, like Ford can simply start cars-as-a-service and become Uber.)
  10. Finally, to the VCs who said “CRM is dead. I will fund next @Salesforce.” What are your startups doing in MRR? $500M in MRR anyone?

Even as these companies continue to grow, the doubts continue to be raised.

When you are inventing a new future, expect resistance.

Tuesday, October 07, 2014

Deconstructing Governments: Is Estonia the first Full Stack Government Startup?

The purpose of a government is provide services to its citizens. After all its all about 'for the people'. Many of these services are not related to a geographical boundary - a few like fire, safety and roads are. This is why we already experience multiple government bodies - city, county, state and federal but they are all structured linearly, one inside the other like a Russian doll. It does not have to be this and Estonia is leading the way.

by permission (Creative Commons)
The governments don't have to be structured this way geographically. It can be a graph of nodes. Think of each government today - city, state,  etc. essentially offering an (outdated) API to a set of services they offer - registering a title for example.

But there is no reason why title registration has to be done by your county. They need the information but the actual act can be performed by a third party and the government can make an API call to verify this information. (Yes, I know title companies help do this but they are acting as an agent not a their own system of record.)

Break up the Government API
Today, governments are like a mainframe system - everything is mingled into one giant, expensive, outdate machine that is sub-optimal. We know that a distributed architecture works better in most cases - and I would argue its true for government too.

The government of Estonia is embarking on one such journey - to offer us many unique online services by taking the first step of offering an online 'government issued online identity'. Think of it in simple terms as somewhat similar to getting a Facebook account and using it to log in to say a news website. Similarly, you will be able to use your Estonia issued electronic identity to do things like sign papers (legally in EU).

Start Simple
In the beginning, we will see very simple services like identity used for online signatures and other basic stuff. Today, we use our email address and password to sign using EchoSign or DocuSign - this will be a step up.

Over period of time, you will be able to create legally viable business entities. I am not aware of Delaware's plans but there is no reason why Delaware could not create an API for creating C corporations for example tied to my identity.

The Beginning of the End of The Big Government
Today, as a resident of say New Delhi or San Francisco, I am beholden not just the local laws but also to the local bureaucracy. My cousin had to bribe someone in India to simply attest a copy of his birth certificate which he wanted to use in Australia. For services like this, there is no reason to rely on your local government service provider. As long as its consistent with the law, you will be able to use any service provider globally.

Balaji and others at Andreessen Horowitz have talked about government as a trillion dollar market and I think they are right. As governments get deconstructed, there will be room for private companies not only to make governments better but to replace entire government departments and programs with private service providers - the 'full stack' startup for government sector is not a Palantir or a OpenGov (read this) but Estonia and many other full service providers.

New Motto: Don't just make government better, replace it.

Monday, October 06, 2014

Is Your Product Roadmap Just Burning Your Money?

The number 1 mistake I have seen companies of all sizes make is to let the customers, sales people, engineers and tactical product managers decide the product roadmap by adding one feature after another.

by Disaster Area (Creative Commons)
If you have product market fit and are doing more than a few million dollars in ARR (annual run rate), you don't need new features to sell your product. If your product is good enough for a few customers with little marketing then it is reasonable to expect that there are many more customers for whom the product is good enough.

Your sales people will complain when they lose to a competitor because of feature X but will likely not be ready to commit to a bigger quota. This is a tell tale sign that this is not a true gap.

Given my experience with 10+ startups and at Salesforce.com, here is my key learning: most product roadmaps do very little to move the needle on growth.

Ask the Hard Question: What if we did no new features for a year?

The way to tease out what is truly strategic and important is to start by framing the problem differently. Think of it as zero based budgeting. - you don't assume that you keep doing the old stuff, you question everything.

I usually ask the management team - CEO, VP of product, VP of sales - to individually assess the change in top line revenue 1, 2 and 3 years out if we stopped building all the new features except bug fixes and just plugging gaping big holes.

The answer is usually shocking - most startups (and big companies) spend most of the R&D budget building features that are unlikely to move the needle.

What would you build to increase revenue 24 months from now?

There is very little that a product can do to truly change the revenue trajectory for a post product-market fit company in the short term. But if you invest in the right areas, it should impact your longer term roadmap. For example, HubSpot adding CRM to its feature set is definitely going to impact its TAM (total addressable market) unlike adding lots of bells and whistles to email marketing. Workday needs to build all the HCM features out but real top line growth from R&D comes from building Financials or Supply Chain products.

Great companies and great product leaders are naturally good at this. They intuitively understand what the market wants and deliver it.

We all intuitively know this for companies that ship hardware. Everyone is asking for the next iPad, the next iPhone - not just a slightly better Macbook. Its important to finish what you started - and there is whole blog post on this - but its important to know that the two buckets are different.

You will never build an iPhone by incrementally improving your Macbook. 

Similarly, a software company that keeps adding features to its one product without thinking in terms of new editions, new product lines or new go to market - will end up with a bloated product not a richer set of products that can alter the future of the company.

I leave you with this thought - what features are you building today that will truly significantly change the your future? Are you building the next iPhoneor are you just adding the 10th button and the 7th app on a Blackberry?

Monday, June 09, 2014

Full Stack Startup Index - and the hunt for Uber Unicorns

Given that full stack companies are in a league of their own - in terms of the markets they serve and how they are built - I think its time to maintain a list of all full stack startups.
Uber Unicorn: yes, its full of diamonds

Before we do that, let me give you a brief definition of Full Stack startup that builds on the work of Chris Dixon at a16z.

Definition: A full stack startup is a technology enabled product or service that directly provides the full solution to the end customer unlike other technology startups that sell their product or service as a technology for internal use typically to the CIO.

Typically full stack startups don't charge for the software but bundle it with the service.

For example, most software companies sell to the CIO or CMO or line of business, and target the IT budget. Full stack companies like Redfin or Wealthfront directly displace incumbents and are not paid for or thought of as a 'software'. You are paying for real estate transaction, a cab, money management and not separately for software.

The full stack startups are probably the best candidates for "Uber Unicorns" - companies that will be worth more than $10B. I would argue the adjective uber is apt. I am going to kick this off and will keep this updated as time passes.

AnshuBlog Full Stack Startup List
NameEatsValuation Estimate
UberTaxis, Rental Cars and more$19B
AirBnBHotels$10B
HomejoyCleaning services$1B+
MuncheryRestaurantsUnknown
Warby ParkerLuxotica "mafia"$1B+
WealthfrontFinancial AdvisorsUnknown
RedfinReal Estate AgentsUnknown
BettermentFinancial AdvisorsUnknown
LyftTaxis, Rental Cars and moreUnknown

For those who are skeptical of full stack startups and their valuations, you should take a second look at history. Biggest 'tech' winners like Google, Amazon, eBay of last 20 years all attacked industries outside of traditional IT and are worth over half a trillion dollars.

AnshuBlog Full Stack Startup Index
NameEatsValuation Estimate
NetflixTV$25B+
TeslaGasoline Cars$25B+
AmazonWalmart and other retailers$150B+
eBayClassfieds $60B+
YouTubeTV$1B
NestThermostats, Fire Alarms and more$3.2B

Watch this space. 

Monday, May 05, 2014

Tech Bubble? Full Stack Goes Beyond $3.7 Trillion IT Budget

I want to convince you that this time it really is different.
Its fundamentally different because the silicon valley is bursting out of tech.
In the earlier generational shifts of computing paradigms from mainframes to client server and then from client server to internet, we were primarily still constrained by the IT budget.Gartner predicts IT spend to grow a meager 3% this year which is still much better than the historic growth rates. So, clearly we can't create 100s of billion in new value within this constraint. Or can we?

We have 3 reasons why Silicon Valley is going to be bigger than ever:
  • $3.7 Trillion IT Budget moving to SaaS & Cloud: The $3 Trillion in IT spend today is dominated by last generation of on-premise, desktop era. As what we do increasingly happens in SaaS apps running on mobile phones and data center gets virtualized - we will shift 100s of billion in spend from old to new architecture.
  • Mobile: Mobile apps not only enable us to rebuild old CRM and HR apps into new apps, they fundamentally increase the number of users that can now access technology. The security guard in our office building now walks around with a super cheap Android phone clicking pictures every day to document his work. The apps are no longer for office workers - truck drivers, security guards, sales people on the move all now have more apps than ever. This is net new spend.
  • Full Stack - Software Eating Hotels, Taxis, Money Transfer, Credit Cards:Technologies like Uber, AirBnB, Bitcoin, etc. are not sold as IT. They are directly competing for dollars that earlier went to banks and hotels. This is net new TAM. Add in what the future of healthcare, robotics, drones etc looks like and you are talking very large multi-hundred billion dollar markets getting disrupted. A small share of these industries can create enormous value. Just go back 10 years and see what Google and Apple have done to advertising and media.
There in lies the answer: mobile and cloud enable are enabling digital disruptions that are turning vacant rooms into hotels and personal cars into taxis. This is not your grandfather's IT budget. This is not even IT. This is IT enabled disruption of entirely new industries and markets.

Oracle, IBM, HP, Salesforce, Box, Dropbox, EMC, VMware, Workday are all in the business of meeting the software needs of companies. These companies collectively represent 100s of billion in market cap and revenue potential. But this all comes out of the Gartner's $3.7 Trillion number.

Uber, AirBnB, Wealthfront, Coinbase, GrubHub, Munchery don't care about the Gartner IT spend. They are the future versions of hotels, banks, wealth management, money transfer, taxis and more.
We have seen this movie before in select few industries - media advertising and retail. Google and its ilk got so big and so profitable because they were busy eating the newspaper and TV's lunch. Amazon has set its eyes on retail and built a very large business.

People like Chris Dixon of venture firm Andreessen Horowitz call these startups "full stack" companies.

Next time you drive down silicon valley and see a billboard - ask yourself - is this company simply moving the IT dollars around or is it about to eat a whole new industry?