Anshublog: The Stack Fallacy - Strategy, SaaS, Entrepreneurship and VC

Don’t Repeat the Benioff Mistake

admin · March 5, 2020 · Leave a Comment

Here’s the deal: if you cut your sales hiring and scale back your expectations — you may end up regretting it. Marc Benioff did.

In 2008–2009, at the height of the panic, I was at Salesforce and Marc Benioff responded to the (much bigger and real) global economic crisis by cutting back on expenses and hiring fewer sales people.

We had just crossed $1B in ARR — and despite ups and downs would keep growing to $10B in ARR and now on the path to $20B.

He regrets it to this day.

Here is Marc Benioff talking about it one week ago:

I think that really played out in a surprising way with a level of strength in 2009, 2010 and 2011 the financial crisis. That if you look at our revenue curves, it looks like it never happened because whether our bookings are up or down one quarter or the next, the strength of our revenue model and the resulting cash flow and commitment we’ve had to incremental operating margin over 21 years has really paid out to have a level of durable capability for the company that I think is been unprecedented in the technology industry.

This applies only to fast growing SaaS or similar companies. In some ways, fast growing SaaS companies were built to be an exception.

Are you growing really fast?

If you are a SaaS company or similar, it takes 2–3 quarters for your sales reps to become productive. If you cut hiring of sales people now, the impact won’t be felt now but a year from now when most likely COVID 19 would be a distant memory like SARS or MERS.

The real question you need to ask first is. Are you growing really fast — say over 50% growth for Series B/C company. Because if you are, and what you sell is something Salesforce, Slack, Workday or whatever — you are probably best of — by continuing to grow. Maybe even double down since your competitors will likely struggle to raise capital even.

(But don’t be delusional. Most companies are not fast growing, high margin SaaS businesses that know how to execute. Standard restrictions therefore apply.)

The shift to cloud did not slow down in 2009 and it won’t in 2019

The move to cloud and other secular shifts are not going to slow down for Coronavirus.

If, however, you are growing reasonably (but not high by your standards) or have a business that has dependence on travel (Booking.com, Uber, AirBnB) or rely on discretionary spending by consumers — all the advice here applies.

But if you are growing like Salesforce did, keep going.

-Fin-

Epilogue

“When someone congratulates me on a good quarter they don’t realize those results were fully baked about three years ago.”
Jeff Bezos, Amazon

Go forth and multiply — your apps.

admin · August 2, 2017 · Leave a Comment

There’s a new wave of reporting focused on the post app era. The Recode announces “App Boom is Over”. Quartz points out how most users never download any apps. Let me be very clear: The App Boom is Not Over.

The reporting on this topic made me think of an imagined Yogi Berra quote.
“Nobody downloads apps anymore, it’s too crowded.”
-Yogi Berra (imaginary tweet)

The $100 Billion Dollar, 20% CAGR Market

Let’s start with facts. The real numbers are amazing — we are in an unprecedented era of growth when it comes to revenue from apps.

Revenue is hard to manipulate since it ties back to financial filings by Google and Apple and needs to be audited.

App revenue is growing and is expected to reach $100 Billion dollars by 2020.
source: VentureBeat & App Annie

Lies, Damned Lies and Statistics

The news and editorial stories doing the rounds have many flaws.

Take app downloads news as an example: it talks about how apps downloads have stalled by pointing out the numbers for top apps.

In truth, the newer apps like Uber, AirBnB, Snapchat are all growing fast while, expectedly, most top apps that have been there for a while and have saturated the users like Facebook are not growing any more.

To use this data, to point to the end of an app boom is somewhat misleading.

Never Been a Better Time for Apps

There has never been a better time to be an apps developer. Billions of users have access to cheap new smartphones, data plans are becoming available globally and the app store owners like Apple & Google are being more generous than ever.

Apple is supporting lower fees on subscription revenue — going from 30% to 15% in year 2 onwards.

As a SaaS guy, let me tell you this is an amazingly insightful decision by Apple — if most developers can be nudged to think subscriptions, in turn making consumers pay more per month, you end up with a very long term, sticky revenue base. Even more importantly this revenue is cheaper and results in a virtual lock in as consumers with more subscriptions are much less likely to switch ecosystems.

Go forth and multiply. Your apps.

Amazon: The Company with a 100 CEOs Cannot Be Stopped

admin · July 7, 2017 · Leave a Comment

A company with a 100 CEOs can do anything.

Amazon appears to be a unique success when it comes to not just the success it has achieved but the diversity of businesses it has succeeded in — from online retail to web services, and the march continues into many, many new lines of business.

Almost every large, successful company struggles with growing beyond its core business. Oracle is great at selling software, Salesforce is great at cloud CRM, Apple is great at selling devices and they do an okay to good job of selling products and services that are complimentary — often through the exact same distribution channel.

The constraint is senior leadership bandwidth.

If your CEO and executive leadership of the company need to be bought in before you can execute, as a business leader you have to now convince leaders who have great instincts for say a retail or ad business to grok an entirely new business model. This is not easy. Most companies fail here.

Google is a great example — it’s done a great job of winning the online search market and almost anything that can be monetized using the same business model — ads. But when it tries to get into new businesses like grocery delivery, selling phones (Motorola & now Pixel), robots that walk, cars that drive themselves — it often appears to struggle on the goto-market and business side. Where it sets up clear business units with leaders it does well, YouTube under Susan Wojcicki being a great example.

What makes Amazon succeed where others struggle so hard?

Amazon appears to be one company run well by Jeff Bezos and his direct reports like Andy Jassy — but in reality Amazon has succeeded in building a culture of 100 CEOs — it hires, grooms, develops and builds “General Managers” — there is literally over 100+ of them*.

A company with a 100 CEOs can do anything.

While many companies give GM like titles to their executives, they are often constrained by central planning of some sort. They pay what is known as the corporate strategy tax. At a company like Oracle, I couldn’t price product A if it would impact the profitability and revenue of (cash cow) product B. Every major successful company learns to protect its cash cow — and while this initially helps, often for decades, it eventually turns into a millstone around the neck of every business. Be it mainframes, databases, ERPs, ad revenue, or whatever.

(Technically speaking, the titles at Amazon are a little mixed. Not all GM’s lead businesses but many do — from Alexa to Redshift Analytics. But the business is structured around these BU leads some run all of India while some are growing new businesses like “live video”.)

Why can’t every company declare 100 CEOs?

Companies often talk about agility and the desire to move faster and move decision making to the edge but they are not truly built for it.

Amazon was built ground up on APIs and Categories

Amazon’s first foray into books meant when it entered new categories, it appointed GMs for new categories who ran them as businesses. Pretty close to how a brand manager at P&G can make decisions around Tide.

But it was the key technological architectural decision of being API driven for every single (micro) service in the company that truly enabled Amazon to be a network of business units — interacting and doing business with each other with clear APIs and rules of engagement.

Companies like Google realize this and hence the move to Alphabet, and appointing a clear CEO of Google Cloud (Diane Greene) but its hard to retrofit this model unless you have practiced it and its deeply ingrained in your culture.

In some ways, GE was the original conglomerate with many businesses operating under leaders but they are big businesses.

Amazon grows BU’s that look like startups from $0 to $100M and sometimes to $1B+ under GM’s that literally start out with nothing more than an idea. Amazon’s database business is one such example.

As Amazon, welcomes its one more CEO — Mackey of Whole Foods, its good to remember that he joins a long list of executives at Amazon running billion dollar businesses, and there will be more grown internally, and acquired.

Engineer’s Guide to Picking an Early Stage Startup

admin · April 27, 2017 · Leave a Comment

What I wish I had known 10 years ago

One of the questions I often get from engineers I mentor is how do you decide on what early stage startup is worth working for? Often, this is long before you have paying customer logos or big name venture funds with substantial commitments as ‘signals’ of potential success.

I was a programmer once. And I had to wrestle with this question too. How do I decide?

More than a decade of experience building new products and businesses, here is what I wish I had known.

Complexity is your enemy

Most great companies are built on solving a big problem with an (after the fact) obvious new viewpoint. Let’s take a few:

Uber: Solved an obvious problem — finding a cab during busy times. And they had a somewhat obvious viewpoint — why don’t we use these new iPhones to find out where the cars are at and get them here. Yes, it gets fairly intricate after that but the core premise was not that complicated to understand.
Salesforce: When Marc Benioff met his technical co-founders (Parker Harris, Dave Moellenhoff and Frank Dominguez), he had a clear big problem — enterprise software should be more like Amazon.com — accessible as a website (yup) on the internet. And he was going to start by building a way for sales people to manage leads.

The world is full of complexity. The genius of these founders was to find a simple solution to complex problems.

Uber was slowly setting out to solve a transportation logistics problem by building a real-time marketplace of drivers and users leveraging cloud computing, mobile payments, phone-based GPS systems and more.

If you saw all this complexity but couldn’t reduce it down to a simple one line problem statemnt — you may make a great economist but not a startup founder.

Market is your friend

It’s hard to say it any better than Marc Andreessen (who gives Andy Rachleff credit for helping think this through). As always, he is right:

When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.

Let’s apply this to a couple of examples.

Uber: If you look at the negative press and all the mistakes they made along the way, billions of dollars poured by American and foreign companies determined to slow its growth — and the company has survived and done well as a business primarily because the market needed this. Lives of millions of consumers (and drivers) are better because we have a solution to a key problem where we spend billions.
Nutanix: This is a great team that met a great market. I know because I was lucky to be there from day 1. CIOs spend over hundred billion dollars a year on storage and compute infrastructure. When you build something better, you get to go from zero to a billion in revenue in less than 7 years.

You cannot build a billion dollar company in a million dollar market. No matter how much machine learning, cloud computing and clever UX and design we throw at it.

Salesforce Founders — the Engineers and the CEO. It worked out well.

CEO: Can she raise capital? Can she sell? Can she hire?

Startups are hard and you have to make difficult decisions with limited data. You have to raise money from investors who are friendly at cocktail parties but become real bankers when you have to raise money. You want a CEO who can help VCs see the vision.

All startups die when they run out of money.

Its the job of the CEO to find your first 10 customers. Can she do it? Will people listen to her because she has insights, charisma and credibility? If the answer is yes, you are on the right path.

All startups die when they run out of customers.

Now, you have a CEO who can raise capital and get first few customers, but can she hire? Can you imagine your friends wanting to work for her?

All startups die when they run out of engineers.

Vision & Mission

Almost every analysis of the startup journey shows that risk adjusted, you are better off keeping that BigCo job.

At the end of the day, you should do a startup only if it aligns better than your way of being.

While the above heuristics are how I have judged products and startups both as an investor and as an executive, nobody knows if a startup will succeed.

Embark on this journey if the team’s vision and mission aligns with you. If it passes the shower test. If you wake up thinking two days after meeting the founder(s) that you wish you were working with them. If your imagination allows you to see this early stage seedling of a startup could one day be truly a company that changed something big.

As my mentor and role model, Marc Benioff often says:

People overestimate what you can do in a year and they underestimate what you can do in a decade, unless you’re (Apple CEO) Steve Jobs.

When joining a startup, focus on seeing what this company could transform in 10 years. Does that excite you?

We are hiring for our startup. If you are an engineer and want to come work with me — email me at anshu dot Sharma at prekari.com

Riding with Nutanix from Day Zero

admin · September 29, 2016 · Leave a Comment

What I learned from angel investing

I am the luckiest guy in the world. I met Dheeraj (CEO) during my years at Oracle more than 10 years ago, and Bipul (Board Member) during my years at IIT more than 20 years ago. When Bipul reached out and told me that Dheeraj was building a company, I had never invested in a startup but I knew one thing: always be closest to the smartest people you know.

Nutanix is Web Scale Computing (XKCD explains it best)

Despite my role leading platform at Salesforce, I knew very little about storage infrastructure so I should have walked away because you should only invest in what you know, says Warren Buffett and every other investment guru I listen to.

But, I wasn’t trying to invest.

I was trying to learn how startups get made.

I had recently become an executive for the first time in my career and I was learning from the very best leaders like Marc Benioff, Parker Harris and Steve Fisher. I was building new products that were on the path to billion dollar businesses.

Yet, something was missing. I wanted to not just build products but also learn how to build a company from scratch.

And I thought if I write a check, I would get to see how the sausage is made. And its been an amazing experience.

Things I learned

Mission Matters: Dheeraj had a clear mission to turn our data centers into invisible infrastructure just like iPhone made cameras, phones, keyboards all disappear into one converged reality.
Team, team, team: Dheeraj and his co-founders picked and hired some of the smartest people at companies like Google and Oracle combining deep consumer and enterprise expertise.
Big on vision, pragmatic on GTM: By focusing early on VDI as a high pain point, Nutanix was able to ramp up revenue early.
Prioritize Long Term, Execute Short Term: Every time I talked to Dheeraj, he always talked about the long term — how the industry was evolving, where the market was headed, how VDI was only step 1, hyperconvergence is only step 2, and where it is all going.

Your People are Your True Legacy

Finally, we are all busy building our companies and yet we are all part of one interconnected whole in silicon valley, and globally.

People you start working with go on to build their own great companies (hat tip Cohesity, ThoughtSpot) — just as Larry Ellison has a string of next generation companies like NetSuite and Salesforce, and Marc Benioff has helped create many in turn.

If Nutanix is to be a true silicon valley success, the people that grow with you and the people that leave must in term build their own successes.

I am excited to see what happens when Nutanix starts trading but am even more excited to imagine how the team will change the world in next 10 years.