From Open Source to SaaS

I'm about to take a week off from my new gig as COO at Zendesk and it got me reflecting on the company and my decision to join.  I stayed with MySQL through the Sun acquisition and left when Oracle acquired Sun.  Although I have a lot of respect for Oracle, it seemed to me the only interesting jobs would be those that report directly to Larry Ellison.  So I took some time off to travel, worked as an EIR at Scale Ventures for a few months and began thinking about what I wanted to do next.

I turned down offers from companies and investors to come in and "repeat the MySQL playbook" in Big Data or NoSQL or apps or whatever.  I think Open Source can be a fantastic development approach and it provides good commercial possibilities when done at scale, but I also felt that it was time to do something new.  And as important as Open Source has been in powering the last ten years of Internet companies, I felt that there was an even bigger force that would play out over the next ten years: namely the cloud.  

While some are quick to dismiss the cloud as a new buzzword for an approach that's been around for a while, I think that's missing the forest for the trees.  I believe the transition to Software-as-a-Service, Platform-as-a-Service, Infrasctructure-as-a-Service will be as profound as the introduction of the PC, client/server or even the browser.  In other words, this is a huge platform shift that will have profound effect on businesses and individuals.  It may take some years to play out, but from my perspective, cloud is where the excitement is.

When I joined Zendesk back in December it was already a strong business.  The founders Mikkel, Alex, Morten had built a phenomenal business.  They got to over 7,000 customers worldwide without a sales team!  That's the kind of adoption that makes open source guys envious.  And I don't mean just free users; these are paying customers including the likes of Cloudera, DataStax, Dropbox, Groupon, Hulu, MSNBC, Neilsen, Rogers Communications, Rockstar games, SAP, SmugMug, Zappos Insights.  Equally importantly, the company has developed a customer-oriented culture.  Zendesk enables the fastest way to great customer service.  It's not just a motto, it's a way of life at Zendesk.  And we love our customers!

In the last six months, the company has delivered tremendous innovation and is now recognized as the leader in cloud-based help desk software.  Recent innovations include: integrations with Salesforce.com, SugarCRM and Atlassian JIRA, advanced reporting and analytics with GoodDataTwitter integration, mobile versions for iPad, iPhone, Android and Blackberry, and a new open API for sharing tickets.  The NetworkedHelpDesk API allows you to share support tickets across teams, organizations or applications with support from more than two dozen software companies.  

Zendesk now has more than 10,000 customers in more than 100 countries worldwide with revenues quadrupling last year.  The company also has funding from Benchmark capital, Matrix Partners and Charles River Ventures enabling us to develop a deep bench of technical talent and a superb management team.

I'm tremendously proud of what we've been able to do over the last couple of quarters.  And I'm even more excited about all the innovations planned in engineering over the next six months.  This is the most fun I've had since the early days of MySQL!  This is one heckuva exciting time to be in the software business.


Cloud, SaaS and The Consumerization of IT

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I wrote a guest column for GigaOm on how open source software, cloud and software as a service are helping to bring about the consumerization of IT: namely bringing simplicity where complexity reigned.  I cited some examples including New Relic, Box.net and Apple.

Open source has gone a long way toward putting power back in the hands of developers, who can download, install and deploy software without having to go through any kind of convoluted sales or budget approval process.  You want MySQL?  You can download and install in 15 minutes, and you don’t have to talk to anyone to do it.

Software as a service (SaaS) takes this to an even broader audience, enabling employees to get the kind of lightweight, consumer, self-serve capabilities in their job without even having to run their own servers.  Platforms like Amazon AWS, Heroku, Makara, RightScale and others put this same kind of SaaS power in the hands of developers...

My view: ease of use trumps a long feature list any day of the week. There are both techological reasons as well as sociological and economic reasons for why organizations are seeking greater simplicity.  Part of this stems from the fact that complex enterprise applications grew beyond the ability of most organizations to successfully adopt.  

Head over to GigaOm for the full post.


How Companies are Using Inhound Marketing

Here's another interesting session from the South by Southwest Interactive conference a few weeks ago... Dharmesh Shah, co-author of the Inbound Marketing book, gave a concise, high-speed presentation on some of the best practices in social media marketing.  Here are a couple of video clips from his session:

A lot of the startups I work with, both open source companies and SaaS, are now taking Inbound Marketing more seriously as a way to grow their business, whether it's an open source business, cloud, SaaS or some combination.  The reality is it's just not good enough to have a killer product.  You need to have a dialog with prospects and make sure that they can find you.  The good news, is with products from companies like HubSpot and Marketo, it's much easier to implement these techniques than ever before.

Of course, these techniques are good for larger companies as well as startups. I wrote a guest posting for HubSpot's Inbound Marketing blog on that topic.


Investing in Disruption

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 I'm an advisor, investor and board member to several startup software companies including Revolution Computing, Pentaho and most recently Erply a new Software as a Service (SaaS) company.  One of the common threads I look for is the opportunity to disrupt a large market.

One of the things that made MySQL successful was its use of open source technology to disrupt the multi-billion dollar database market.  In Silicon Valley, people often talk about disruption, but usually what they mean is they have some new feature or a new way to do things that is 10x faster or 10x cheaper.  Those are good things, but that's not necessarily sufficient to make a business truly disruptive.  

The classic disruption model as defined by Clayton Christensen comes down to 4 important factors:

  1. There's a proven market with large incumbents
    This demonstrates that customers are willing to pay money to solve this problem

  2. There are underserved customers whose needs are not being met by the incumbents
    They may be receptive to a "good enough" product that is easy to access

  3. The incumbents cannot profitably meet the needs of this market
    Ideally, their entry into this market would hurt their core business 

  4. To disrupt market, you need to disrupt all the players, not just some of them
    If there are other players, you need to disrupt all of them

If you have all of those things, then your business could be disruptive.  But typically many startup companies ignore the third point.  It's not enough to do something the incumbents don't do today, you want to do something that they cannot do, because it would hurt their existing business.

In the case of MySQL, the product targeted the underserved web developer market.  MySQL was not only a better fit technically in that area, but due to its open source model, it was a business that was unattractive to the incumbents. (Or it was, until it grew to beyond $100 million in revenue.  Now Oracle will leverage this force to compete against Microsoft SQL Server.)  

There are plenty of great businesses out there that are not disruptive; perhaps you're creating a new market, or you're introducing a new innovation that the incumbents have not discovered.  Disruption isn't the only strategy, but if you can make your business disruptive, you gain a significant advantage in the market place.


Growing 100x through inbound marketing

Around a year ago, I took on a new role at Sun as vice president of lifecycle marketing. While the title was an odd one, the charter was pretty straightforward: Bring the best practices of open source, Web 2.0, and modern online marketing to Sun's portfolio of servers, storage, software, and services in order to drive up revenues and drive down customer acquisition costs.

Open source was an incredible calling card that we could use to determine what customers were interested in. Now we just needed to figure out how to harvest that interest.  It worked for MySQL as a startup, but how would these techniques apply in a bigger company like Sun?  Pretty well, as the graph below illustrates.


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We achieved more than 100-fold growth during the year in terms of top-of-funnel raw leads as well as qualified BANT (Budget, Authority, Need, Timeframe) and pre-BANT leads. And while there was sometimes skepticism that online marketing activities could generate real revenues, we finished calendar Q4 with a sales-accepted pipeline value that would be on par with what you might see in a 5- to 10-year-old startup company.

In fact, the group operates a lot like a startup within Sun and has achieved the kind of growth that would be the envy of any startup in the Valley. We haven't reached the point of having a perfect closed-loop system to track every deal that closes anywhere in the world, so the pipeline metric is fairly conservative. From a cost perspective, we achieved more than a 10X ROI on fully loaded costs, including all program dollars and head count costs. We've seen our efficiencies improve through the year, with response rates increasing by a factor of 10 to 20, while cost per lead has gone down and average deal size has gone up. (Note that these numbers are exclusive of MySQL's results, which continue to operate as a well-oiled lead machine.)

Even more promising is the fact that there's still plenty of room for growth. I expect that over time these efforts could approach half a billion in pipeline if they are connected to an expanded inside sales effort. Limited calling resources have been the gating factor in our growth at Sun and that's an area where Oracle has considerable expertise.

The most common question we get when we present our results is "what was the one thing that drove the growth?" Unfortunately, it isn't that simple. As Brian Halligan, CEO of Hubspot has said, for 99 percent of companies, marketing doesn't require automation -- it requires a transformation. And that's exactly what we did. It wasn't a question of doing one thing, it was more like getting hundreds of things going across many different areas of the business, ranging from holding product-positioning workshops with engineering teams to establishing broad efforts to generate leads with white papers, Web seminars, and product registration incentives. There was relentless A/B testing of e-mail campaigns, new efforts for lead nurturing, scoring, and routing optimization.

Mostly it came down to continuous experimentation, measurement, and refinement. There wasn't a single quarter where we didn't overachieve on our results and still feel that  we had more room for improvement. That approach is alive and well in the lifecycle marketing and online marketing teams at Sun, and I hope it will continue on at Oracle.

In a subsequent post, I'll describe some of the specific techniques we've used to drive growth, many of which are described in the excellent book Inbound Marketing by the marketing gurus over at HubSpot.

Update:

Here's a follow up blog post I wrote over at HubSpot.

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