What's 🔥 in Enterprise IT/VC #239

Musings on product from a day one investor - 10k foot signals that drive early success

Happy Memorial Day Weekend to those who celebrate. This marks the first days of summer vacation and let’s see if there are any letdowns in the fast 🏎️ and furious venture financing markets. Having been up late last night helping one of our founders sign a term sheet before the weekend kicked in, I can tell you that it is not - this past week has been on absolute 🔥 and I do not see this slowing down any time soon.

Lately, product has been top of mind for me, as it usually is. I’ve written so many times about product in this weekly and thought I’d summarize a few 10k foot maxims when thinking about product, esp. when investing in founders with no product 😄. Warning I am not a product guy and just sharing some thoughts from a day one investor.

1. Product velocity (Paul Graham) + hiring velocity - can’t get first without right folks onboard from day one, best founders need to incorporate because they have 3-4 builders (eng, design) ready to join BEFORE funding

   Ed Sim @edsim

   Product velocity one of 🔑 determinants of success from idea/pre-product to next round. Hiring velocity close second. When pitching, make sure u share who those 1st senior eng hires could be as it can be difference of a few months time in product dev which is lifetime at seed.

2. Who are you building for? Need to understand and focus on that one user first…and can’t skip steps to get to product market fit…nail product for that first user and then move to next, add a zero…

   Ed Sim @edsim

   If you want to go freemium you need to ask yourself "am I building for the manager or end user, developer or director” - super hard to go freemium and viral if product is manager vs core user, too many times founders try to go freemium but don’t realize it’s a top down sale

   Ed Sim @edsim

   Founders, knowing when to zoom in and zoom out is so important. Hard to deliver product if you can’t zoom in myopically on who user is and product. Zoom out necessary to position yourself in broader ecosystem and claim a space, product vs company.

   Justin Kan @justinkan

   Prioritizing growth over product We raised a $10m series A with just an idea. We focused on growth over everything else. While we successfully grew our customer base, we couldn't retain them. We simply hadn't spent enough time to figure out our product.

3. And as you grow, never forget this: what is your product north 🌠

   Ed Sim @edsim

   More from @guypod on the founding principles and product north ⭐ which has never changed from the very beginning: "developer-first security that prioritizes the developer experience first and foremost" snyk.io/blog/our-journ…

   

4. Product and GTM go hand in hand

   Ed Sim @edsim

   2/ For founders, give investors a “reason to believe.” Why are you going to do it, how differently, what is unique insight + product edge, + how does that tie into GTM - product/GTM must go hand in hand.

5. Instincts drive early product, need a product north 🌠 but over time…

   Shreyas Doshi @shreyas

   We need to stop pretending that *all* product decisions require mathematical proof. Trust me, it's fine to use instinct & creative insight for major product decisions. And if you like moving fast, it's often required. The trick is when to do it, who does it & how it gets done.

6. Need to wire metrics as well to tweak usage and retention - fullstory for user session recordings, Segment to pipe in data, Amplitude for cohort analysis and funnel and user journeys

   Ed Sim @edsim

   That feeling when founders building a PLG product wire up their analytics and finally trust their data - opens up a whole new world Too often, building analytics into the product comes as an afterthought which means lots of lost opportunity

   

Have a wonderful weekend and prepare for an even for an even faster paced 🏎️ summer! As always, 🙏🏼 for reading and please share with you friends and colleagues.

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Scaling Startups

1. Great 🧵 on being an effective senior executive from Dan Rose who worked both for Bezos and Zuck

   Dan Rose @DanRose999

   It's hard to push back on the CEO, they have the most context and power. But their context is wide and shallow, and sometimes they miss important nuance. The job of a senior leader is to fill in that nuance by framing decisions clearly and escalating efficiently. Not to complain.

2. 💯

   Austin Rief ☕️ @austin_rief

   The biggest mistake mistake I see when people analyze companies: They give large companies WAY too much credit. Most large companies are incompetent at doing or thinking about anything beyond their core competency.

3. 👇🏼Must read 🧵 from Justin Kan - one of🔑 lessons amongs many others, nail the initial user and product - the why you are doing it and for who…

   Justin Kan @justinkan

   My first company @Twitch sold for a billion dollars. My second one lost $75 million in 36 months. People love talking about success, but today I'm going to talk about failure. It's time to be honest about Atrium:

   

4. 🤣 State of the market now - but late stage means anything after pre-seed

   Andrew Reed @andrew__reed

   A live look at the current late stage VC market:

   

5. Is there a typical profile for the founder of a future 🦄? Not really according to Ali Tamseb who is a partner with DCVC and the author of Super Founders (more from Forbes) which analyzed over 30,000 data points to reach his conclusions.

   85%: the percent of such companies that had competitors at launch.

   30%: the percent of founders who had worked in the same industry before.

   17%: the percent of unicorns over the past 15 years that outright failed.

   4%: the percent of college dropouts, less than the number of PhDs.

   1.6x: how much more likely a founder with a previous startup failure was to reach a $1 billion valuation compared to a first-timer.

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Enterprise Tech

1. from VMware CEO, Raghu Raghuram - I am seeing multicloud in our portfolio come up more and more FWIW

   We are at the dawn of this multi-cloud era of computing.

   Post spin, we will be the only stand-alone cloud company that has the necessary strategic partnerships with all the major cloud companies and all the leading infrastructure companies to deliver on a truly customer-centered multi-cloud vision.

2. CNBC Top 50 Disruptor Companies - fintech dominates but lots of enterprise like Snyk (a portfolio co), Cockroach Labs, Cybereason, Databricks, and Airtable

3. Thought provoking post from Martin Casado (a16z) on benefits of ☁️ early in a software company’s journey and how it can be a huge tax as companies scale - Martin also lays out $ benefits of repatriation and why it’s so important as companies mature and their growth slows and the importance of gross margin magnifies

   The exact savings obviously varies company, but several experts we spoke to converged on this “formula”: Repatriation results in one-third to one-half the cost of running equivalent workloads in the cloud. Furthermore, a director of engineering at a large consumer internet company found that public cloud list prices can be 10 to 12x the cost of running one’s own data centers. Discounts driven by use-commitments and volume are common in the industry, and can bring this multiple down to single digits, since cloud compute typically drops by ~30-50% with committed use. But AWS still operates at a roughly 30% blended operating margin net of these discounts and an aggressive R&D budget — implying that potential company savings due to repatriation are larger. The performance lift from managing one’s own hardware may drive even further gains.

   martin_casado @martin_casado

   [NewPost] Sure, Cloud is great. But we show it hurts share price of public companies on the order of hundreds of billions ... and they can economically justify almost any level of work (including repatriation) in order to lower costs (w/ @sarahdingwang)

   

   a16z.comThe Cost of Cloud, a Trillion Dollar Paradox - Andreessen HorowitzThere is no doubt that the cloud is one of the most significant platform shifts in the history of computing. Not only has cloud already impacted hundreds of billions of dollars of IT spend, it’s still in early innings and …

4. 👇🏼A primer on chase engineering and what’s next for resiliency from Nora Jones, founder of Jeli.io, an incident analysis platform (portfolio co) and formerly head of Chaos Eng at Slack and prev. Sr. Dir. Chaos at Netflix. So much goodness here and if interested at all in this space, this is a must read. Chaos is great but also need to know what experiments to start with vs. randomly breaking things which is why Nora believes that incident analysis must come first:

   Instead of helping companies break things, it focuses on incidents where things break all by themselves, then figuring out what happened and how to keep it from happening again.

   Nora Jones @nora_js

   I was interviewed for this great piece on Chaos Engineering - I spoke about how to get ROI from it and highlighted what’s frequently missing from implementations today.

   

   The New Stack @thenewstack

   Chaos Engineering Moves Beyond ‘Breaking Stuff’ to Highlight Business Value https://t.co/kXydjp7Dz2 @MariaKorolov @LaunchDarkly #Sponsored #KubeCon #CloudNativeCon #ChaosEngineering

5. Reminder: garbage in, garbage out - need high quality data for AI - the grunt work matters

   Marshall Kirkpatrick @marshallk

   “Everyone wants to do the model work, not the data work” new Google research finds that under-appreciation of data quality, including in high-stakes AI, results in 92% of AI projects experiencing data cascades: compounding, negative, downstream events storage.googleapis.com/pub-tools-publ…

   

6. Must subscribe substack from my colleague Shomik Ghosh - 👇🏼 this one with Ray Colletti from Datadog, employee 10, is 🔥 on early sales motion to scale

   Shomik Ghosh @shomikghosh21

   Software Snack Bites #13: Interview w/ Ray Colletti, Employee 10 at Datadog, VP Revenue at CodeCov, & Founder of Zag Capital Ray is my go to resource for all things gtm He dives into tactical tips around customers & high growth startup learnings

   

   shomik.substack.comInterview w/ Ray Colletti (Zag Capital, Datadog, CodeCov, AppNexus)Ray is my to go resource for all things dev first go-to-market

7. Data exchanges are becoming a thing with Snowflake and now Google Cloud

   It took Google Cloud about 18 months to launch Datashare, Christin Brown, the firm's global financial services industrytechnical solutions leader, told Insider.

   Much of that time was spent engineering the pipes that automate the transformation of data submitted by providers. The process includes standardizing various data sets into a uniform format so consumers can analyze and handle data across providers in a consistent way.

   That "secret sauce" was the heaviest lift from an engineering and software development perspective, Brown said. The data transformation takes place automatically at the time of ingestion into BigQuery, a data warehouse that also offers analytics and machine-learning tools.

8. Yes, I’m obsessed with Backstage.io, the open source developer portal from Spotify - great read from Roadie.io and how Expedia is using backstage to manage 20k micro services, 400 unique developer tools, 3000 APIs and more than 1000 bespoke libraries 😲

   They are measuring a number of concrete KPIs to establish their level of success with Backstage.

   1. Raw user load. How many internal developers are using the platform and how often.

   2. The number of APIs tracked. While they did have an existing registry which could provide a list of components in Expedia Group, no such list of APIs existed. This list is being built up from scratch in Backstage as developers use the tool.

   3. Change in the time to first and tenth commit. By extracting the time that an engineer joins the company or switches team, and matching that against their commit history, Mike and Erik are measuring the decrease in the time to 10th commit during onboarding.

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Markets

1. Salesforce growth accelerating again along with strong guidance for rest of year - great signs for enterprise software investors

2. Box beats Q1 expectations delivering over $202m of revenue, up 10% YoY and here is earnings transcript - Aaron is so good at nailing big themes for the public investors and great to see him laying out his big vision for Box, the Content Cloud for enterprises.

   Our strategy is well aligned to three major trends that are driving the future of work. First, work is being defined by hybrid work environment. In a recent Gartner study, more than 80% of company leaders surveyed said they plan to allow employees to continue working remotely at least some of the time. Even as offices open back up, traditional physical boundaries will continue to blur and enterprises will need to empower collaboration both internally among virtual and distributed teams, and externally with partners, customers and suppliers to get work done from anywhere.

   Second, we know that the future of business will be cloud and digital first. Customer and partner interaction will increasingly be executed digitally from the onboarding of employees to automating workflows with partners. These workflows must function using multiple cloud-based application, access to content in a single unified platform across a multi-cloud environment is critical to ensure productivity and business success.

   And finally, data security, compliance and privacy remain more important than ever. Governments across the world are enacting new data privacy requirements and as recent cyber attacks, such as the SolarWinds and Colonial Pipeline events have shown, cybersecurity threats are affecting all enterprises, and creating significant business disruption. Content integrity is an absolute requirement. Content is the lifeblood of a company and any breach that threatens the security of content can cause irreversible damage to the enterprise.

3. Creative destruction in one pic - Turnover of the Top 50 Largest Companies has been incredible - about 60% every decade and yes, tech and finance dominate (Bloomberg)

   The world’s biggest businesses were doing fine until Covid-19 arrived. Now they’re doing even better.

   The top 50 companies by value added $4.5 trillion of stock market capitalization in 2020, taking their combined worth to about 28% of global gross domestic product. Three decades ago the equivalent figure was less than 5%.