Fireside Chat: Jyoti Bansal of harness.io & Dev Ittycheria of MongoDB (Video + Transcript)

Jyoti Bansal, Founder and CEO of harness.io and Dev Ittycheria, President and CEO of MongoDB held a fireside chat at SaaStr Annual. They talk about product adoption, sales alignment, freemium models and lessons they have learned throughout their successful SaaS careers. A great listen for those who are in the early days.

Also, don’t miss out on SaaStr Annual happening in less than one month!.

 

FULL TRANSCRIPT BELOW

Jyoti Bansal – Founder and CEO of harness.io

Dev Ittycheria – President and CEO of MongoDB.

Jyoti Bansal: All right, let’s get started here. And I feel like a talk show host in this kind of set up. So I’ve known Dev for a long time, when I was the founder and CEO of AppDynamics, Dev was in our board and I worked with them long time. I still remember the very first time I met Dev back in 2011 and I was this engineer turn first-time founder, CEO running the business. And we were like less than 10 million ARR and business was doing very well. And I met with Dev and I was telling him our business was doing very well and he asked me, “Why is it doing well?” And I told him we have a good market, we have a good product and because the product is good, that’s why our business is doing well.

Jyoti Bansal: And then he started talking about sales and Dev during the breakfast he convinced me if you can marry the right kind of sales scaling and execution then that’s when your business will really, really take off. And I think the lessons I’ve learned from him as we were building AppDynamics and kind of how do you bring scaling and how do you execute at a much higher scale? I’ve learned a lot from Dev and we’ll talk about some of those topics here today.

Dev Ittycheria: Thank you.

Jyoti Bansal: So first thing Dev is, I know you started as an operator running a startup company, you took it public and then you became a VC and then you became an operator again. Now, running MongoDB as CEO. So why that journey and it’s a pretty unique journey going back from MVC to being an operator.

Dev Ittycheria: So obviously I was fortunate to have some success with my last company and then I actually saw a bit of scale. I ended up, we were at Blade Logic and then we got acquired by VMC and we ended up running the distributed business which was about a one point $1.4 billion business, but after a while that started losing its luster and then I took some time off and couldn’t find anything really interesting to do. And then Greylock approached me about being a partner that ended up being a really fun experience. The reason I contemplated doing it because I really want to be involved in cutting edge technology and work with smart people. And actually Jyoti and I met before the Greylock experience. In fact, we met when I was just trying to figure out what I was going to do next but just meeting people like Jyoti was something I found really interesting and stimulating.

Dev Ittycheria: And I thought also when I looked at my board previously, the most valuable board members were the people who actually had been there and done it. And who could help me anticipate the next set of problems, the next set of challenges for the business. And I don’t believe that there’s a compression algorithm for experience. I think you really have to go through the experience to really know intimately what are the next set of challenges the company has to go through. And so I was in some ways trying to play that role for entrepreneurs like Jyoti who were starting out in building really interesting businesses. And what I was looking for was just working with smart people who had a really innate sense of a market opportunity, whether it was in the new market or a better alternative to the existing market.

Dev Ittycheria: And just were also frankly coachable and adaptable. And I’ve met a lot of founders who feel like, you know, and I’m seeing they’re all reasonably smart, but the best ones I think are very adaptable and listen well. And I think this might be the mutual admiration society, but I think one of the things that Jyoti does incredibly well is listen very, very carefully. Now, he won’t always take all the feedback, but he will listen very carefully. And I think that’s one of the lessons learned from me is just knowing how to listen well and learn from people’s experiences so you can kind of, you know, while you can’t completely compress and the experience algorithm, you can try and shorten it as much as possible.

Jyoti Bansal: So since you have been on both sides on the investor side and as a VC and also as running a company and raising capital, what’s your advice to the entrepreneurs here who are looking to raise capital? What’s the right way to pitch to the VC’s?

Dev Ittycheria: Well, I think the VC is really, I mean it is really back to the fundamentals. I mean, and I may at the risk of stating at times of blinding lava, they’re very … They’re really care a lot about what is the market opportunity you’re going after, right? You can have the great product and a great team, but the market of small or very niche. Then the outcome is obviously a function of how big the market is. So one is, are you going after an interesting enough market? The second one is the team, obviously depending on how earlier the team has a huge factor because you may be so early in your journey that there’s nothing else to point to, but the track record of the team.

Dev Ittycheria: So as a VC you’re trying to say, what does this person or this team know or what unfair advantage do they bring to the table that really gives them a leg up over everyone else? And the third thing is what is it about the product or the business model that they’re basically contemplating that gives them a very defendable technology advantage? And so those depending on the stage of company, those have varying factors. Obviously little later stage market is much more well known. And now it’s all about like, can you really scale and execute? And obviously valuation plays a factor in terms of that discussion. But those are the kinds of things you look for.

Dev Ittycheria: And in some ways even though I’ve been a VC, and an operator, in some ways as an operator, I’m just now investing my time, not my money. So when I looked at opportunities to pursue, whether to go back into an operational role, a lot of it was around how big is the market opportunity? How defendable is the technology of the product or the business model? And is it a team that I really want to work with and do they, is it someone that I feel like can really take this company to its whole potential? So I think it plays on both dimensions.

Jyoti Bansal: Yeah. When I was starting as a first time entrepreneur in 2008, I got rejected by a lot of VCs. So I’ve learned the hard way. It’s like I got rejected by at least about 20 VCs before I got my first offer. And it’s really, my thesis evolved into like, it’s only three things to look for. To convince someone how big the market is, it could this really be a billion dollar company if everything goes right? And then what’s your unique advantage as a company, as the team? And then some track record of execution either as the new startup or in the past. And if you get those three story points right, that’s what you would normally get people to be out to be interesting in.

Dev Ittycheria: Well, Jyoti is being pretty modest as some of you may know. I mean he’s obviously, I call him the four billion dollar man because he’s sold after AppDynamics for nearly four billion to Cisco. So the question I actually have for you is, now that you’re starting Harness, what lessons have you learned and what are you careful about, mistakes that you want to avoid? The second time round.

Jyoti Bansal: That’s a good question. Starting a company the second time and running it the second time. It’s a bit easier on a few things. That fundraising is easier. I don’t have to go to pitch to 20 VCs to get an offer. 20 VCs do come to me to invest in the company now. So that’s easy. Recruiting is easier, but the things that don’t change are customers don’t care. They don’t care like you had a successful company or not in the past. Do you have to still find the right product market fit, you have to build a good product, you have to service the customers, you have to compete in the market. None of that changes.

Jyoti Bansal: So I think the lessons that I’ve learned from the AppDynamics experience building it is number one is that it’s kind of the cliche that it’s a marathon. It’s not a sprint. And when I was doing the first time, I was just running as fast as possible all the time. And it takes long time to build a company. So this time I’m more careful that you just have to keep that in mind early on that you have to figure out the right balance.

Jyoti Bansal: I’ve also learned it’s better to hire leaders earlier than you think you need because then you can delegate, you can trust and at AppDynamics I was hiring leaders only when it felt it was already late. I should have hired someone in some role like six months ago, a year ago. So this time I want to be a bit more careful about that. Another thing I’ve learned is just try to keep things simple. If you try to keep things simple, then it scales better. And you remember from AppDynamics we had a lot of complexity in the business on licensing models and all sorts of different things and it works, but at when you’re smaller, but then it becomes too complex. So the more you keep things simple and straight forward, the better it is. So definitely some lessons I’ve learned that helped bring in as I tried to do a company again.

Dev Ittycheria: Well, one of the things in the venture world that VCs worry about is when they’re backing an entrepreneur for the second time, obviously to the point you always get the benefit of doubt, but there’s one lingering doubt is that, will the entrepreneur be just as hungry the second time around? And actually the track record of second time entrepreneurs is not as good as you would think because you would think this person has been there, done it. So you almost have more certainty of a good outcome. And actually the inverse is true. So how would you do [crosstalk 00:09:28]?

Jyoti Bansal: I think that’s … And that’s the question I ask myself all the time as well, because it’s very easy to get complacent and it’s very easy to also get let’s say impatient. Because you have seen, let’s say I’ve gone through a certain scale and I want to get there really fast and that’s what … And you start taking shortcuts. You start taking, if some of you, you won’t get some of the basics right. When you’re doing it the first time you don’t have the luxury to take a shortcut because you have to walk every milestone on the path and if you try to skip things, that could be a problem. And I’d tell our team that we have to make sure we don’t do that, but that could be a challenge yes.

Jyoti Bansal: Let’s switch topics to sales. In this conference that’s a important thing like, you know, as companies start, they start getting a product market fit. How do you build a sales organization and I mean the scaler sales organization? And you have a tremendous track record of doing that. I’ve learned personally a lot from you there. So let me start with the basics on like, what do you look for when you have to hire someone in a sales leadership role, what do you look for?

Dev Ittycheria: Yeah, so before I answer that question, I would just say the other thing I’ve seen with being a VC here in the valley is that a lot of founders almost view sales as this necessary evil. Obviously most founders are pretty technical and they have this, especially in B2B businesses, they have this misconception that the product will really sell itself. I can assure you, whether it was 20 years ago or today, that is not the case. And the reality is that trying to sell into a large complex organization where the people have different agendas, different biases. And frankly their own insecurities and issues as well as just the organizational inertia is not a trivial task. And so if you think sales is this necessary evil, they only do it and spending just a little time on and really focus all the time on product. You’re doomed to a suboptimal outcome.

Dev Ittycheria: With regards to your question, I think the first thing for a leader is their ability to recruit. And frankly, it’s not just for sales, but for anyone. And I would make the statement that there was never a great leader who could not recruit because by definition, the leader needs to be able to attract people who obviously want to believe in the mission and want to believe, and want to be part of the journey. And they also need to, I’ve seen know how to recruit for the time and place and the stage of the company. You don’t want to hire someone who’s looking to do seven figure deals when you’re right now trying to land a bunch of pilots and get some track early traction and accounts.

Dev Ittycheria: The second thing I think it’s really important is someone who’s got a much more of a process or orientation like sales is a science. It’s not, there’s obviously some artistic tendencies, but sales is science. So you can break the sales process quite clearly and someone who really understands sales is science who can break down what it means to really understand customer needs. What it means to really identify what their pain is, identify who the influencers in that organization and then how to prosecute a deal and also know how to qualify a deal in terms of when will that deal happen? Will it happen this quarter or next quarter? And roughly what the size of that deal will be is incredibly important because you can’t run your business if you can’t forecast the business. And so the sales leader needs to have a process orientation and an analytical framework by which they kind of think about the sales organization.

Dev Ittycheria: So that’s to me is really important. They also need to understand that they can’t just what I’d call cut and paste from their last job. Right. So a lot of sales leaders come say “I did this, at my last company, I’m going to do the same thing here.” Well, every company has different customer buying behaviors. Every company has different competitive issues. Every company obviously had different product challenges, different competitive dynamics. And so they just try and cut and paste what they did in the previous company to this company. That’s also a recipe for disaster. Someone who can really understand and the head of sales, at the end of the day, there’s a lot of people who know how to take a playbook and then go execute it. But the head of sales actually has to write the playbook.

Dev Ittycheria: And so if they’ve never written the playbook before then it could be a real issue for them because it’s very easy to take someone else’s playbook and that’s where they do the cut and paste. But they really need to be very thoughtful work with the CEO and the rest of the management team to really understand the nuance of the business. And really also then know like what does the kind of profile of salespeople I need? What is the size of transactions I should expect now versus later? What is the cycle time that we should expect those deals to happen? How do I train my sales force in a way that makes them productive as quickly as possible? These are all things that are just not cookie cutter. And so those are things that I would encourage you to think about when you’re contemplating recruiting a sales leader.

Jyoti Bansal: That’s a very good point. One thing I’ve been where I have made mistakes in sales leaders, that’s the one mistake I’ve done it’s people who can’t create a new playbook. Because every company is different. Every market is different. Someone who has been really, really successful before in some market then they’ve tried to use the same formula would fail. And another thing is that the markets, even as the same company market will evolve. Then what sales motion you need today and what you need two years from now and what you need four years from now is going to be different. And people who can’t change the sales playbook would struggle there definitely. That’s the most important role to get right for B2B companies, that’s the right sales leaders. You get your product right, you get your … The market is big enough. You get your sales right, you get the primary basics right. So that’s a really good advice on what to look for. What do you look for as CEO, as the key metrics when you are to measure like how is your sales organization doing other than the top line numbers?

Dev Ittycheria: Yes. So one of the things that I think is a very telling metric is sales productivity. And you may say, and that’s not just for sales but for the entire business. Again, I’m talking about a B2B business because sales productivity is really a measure to some sense of product market fit. It’s a measure of your overall go to market business or functions and some measure of frankly, of the value that customers perceive of your product. And it doesn’t mean that you have to sell a big product. You could sell a product that has a low ASP, but just sell a lot of it and you could have high productivity or your business could be a average deal is a six high six figure, maybe a seven figure deal, but it’s all about sales productivity.

Dev Ittycheria: And to me that’s a metric that’s really it gives you a clear correlation to the health of the business and it’s something to track over time. And so as you see the trend lines, if things are going up into the right, that’s good news because that means the organization is getting better. But if they’re plateauing or they’re going down, then something’s wrong. And then the question is why, is it a product market fit issue? Is that the fact that you’re really tactically selling and not really selling the strategic value of your products and services? Is it the competition is underpricing you and you have no way to differentiate your product or services? And so it’s really important because that’s a very telling metric. The other thing I look at is broad based performance across the sales force.

Dev Ittycheria: So you could have a great sales productivity metric, but if you have five salespeople in one person blew out their number and compensated for the four other people who may be missed their number, that’s not a healthy sign. So you really want to see a high percentage of your salespeople hitting their numbers. Not 100%, but it shouldn’t be 50% either. So it should be somewhere, I think like the ideal mix of some of the two thirds to 70% range, where if you can point to roughly six, seven out of 10 people making their number, then you feel like, okay, things are going pretty well. And because if 10 are making the number then maybe the targets are too low and obviously if three out of 10 and making somebody, then you’ve got something else going wrong. So I think that’s another healthy metric in terms of the health of your business.

Jyoti Bansal: So a lot of people would, with open source markets and MongoDB is one of the great success stories in the open source space. How do you get sales productivity to be high or how do you monetize effectively in open source space?

Dev Ittycheria: Yes. Actually that was one of the questions I had when I did my diligence was like, how do we, because as a VC has to look a lot of these open source businesses and the challenge was where do you put the Pay Wall? Like if you give away too much of your product, then it’s hard to monetize. But if you don’t give away enough, then you have very little adoptions. So it’s this classic tension between adoption and monetization. And so one of the things that MongoDB had, it’s pretty unique as an open source company is a very different licensing model. And rather than the traditional Apache licensing model, we have what’s called the AGPL licensing model. So that’s much more restrictive in terms of what customers can do with a technology or frankly, what the cloud providers can do with your technology.

Jyoti Bansal: Amazon discount, take your product and offer it?

Dev Ittycheria: Exactly. And that’s a real issue. Like, if you’re building a product with an Apache license model, they can take your free version, plug it into their cloud, offer it as a service and not have to pay you one red cent. So I would argue they’ve done a better job of monetizing my SQL than my SQL syn or Oracle ever did. And so AGPL almost gives you all the benefits of open source, the mind share, the virality, the adoption, but also a way to kind of capture value intelligently. That’s point number one.

Dev Ittycheria: Point number two is really qualifying people who are kicking the tires, so people who are really trying to solve real business problems. And frankly that’s a thing you have to do. Even if you are running a company like AppDynamics or Harness or any other company. You have to qualify who are really trying to solve a business problem versus just enamored with the technology. While you want it obviously get buy in and get people to use technology. You really want to spend your time with people while trying to solve real business problems.

Dev Ittycheria: So we have a saying if people are not buying means that there’s not enough pain. So you have to go find that pain and saying, is the pain deep enough? Because if it’s not painful enough for someone to solve a problem, they’re not going to spend money doing so. So when we look at our adoption, we try and find out what are the problems that they’re trying to solve and then I make sure we devote our energies there. The third thing I would say is in our business, you know, obviously developers are an important constituent, in fact, the most important constituent. But developers don’t always have the right to say yes, but they always had the right to say no.

Dev Ittycheria: So they can kill your deal if they say MongoDB won’t work for us, but they will not … It doesn’t mean that just because they say they like MongoDB that you’re going to get a deal. So you also need to know how to sell high to the economic buyer. And obviously that person is going to care a lot about the ROI that they’re gonna get through this investment. So the tricky part is knowing how to sell low to get adoption and kind of usage, but also selling high to kind of really communicate the economic value of making an investment in MongoDB.

Jyoti Bansal: Yeah and it’s anyone selling to developer market which I’ve done it. AppDynamics, you do at Mongo. You have to give them something to use without talking to a sales person. You have to implement the sales force and the sales process and eventually that’s how you will do business. But it’s … And I was a developer before. I can tell you if I can’t touch the software, I can’t try the software without having one or two sales meetings before I won’t use it.

Dev Ittycheria: Exactly.

Jyoti Bansal: So it’s a mustang. I’ve seen companies doing very well with when it’s not open source and do a freemium kind of model. It’s at least easier to monetize. But you compromise on the adoption and the vitality. It’s lesser on freemium. Do you think at MongoDB when you look at freemium are the open source strategy is really an extension of a freemium kind of model?

Dev Ittycheria: Exactly. And actually that decision was made before I got to MongoDB, but the founders realized that there will never be another new commercial database because the open source alternatives are too good. So they made a decision to outsource but they didn’t make the decision ourselves because they want to leverage the community to make the product better. They made the decision to outsource to make it a very frictionless way to use the product. And in some ways, I remember in the early days of AppDynamics you were very focused on making it really easy for people to download AppDynamics and get real value quickly. Which puts a high burden on the product teams because the product has to be immediately very easy to use and they can’t be any real bugs because if there’s a bug, the user, in this case, in our case, the developer will stop using it immediately. So it puts a lot of pressure on the engineering teams to really make sure the product is rock solid before you release it.

Jyoti Bansal: It’s kind of ironic that the bar on a free product is much higher than the bar on a paid product because on a paid product you have a sales engineer involved or someone involved-

Dev Ittycheria: You can curate the experience.

Jyoti Bansal: You can yes. In a free product, it’s got to work. It’s got to work in five minutes, otherwise you lose them.

Dev Ittycheria: Exactly.

Jyoti Bansal: So in my experience I would rather wait to launch the free product and I would until I have more customers who will refine the product. It’s interesting what you described on the kind of like you have to go to the developers in these markets, but you still have to go and go to the economic buyer. I started calling this like the sandwich model. You go from the bottom and you go from the top and you have to do both. Otherwise, if you don’t go to the bottom, you don’t get the adoption. You don’t get the mind share. If you don’t go from the top, you don’t get monetization. People don’t, you can’t get larger deals. You can’t go into larger enterprise. It’s-

Dev Ittycheria: Yeah and actually the irony is like when I was a VC in the early posts like the 2008 crash, a lot of people said, “Hey, we want to get away from these expensive sales and distribution models because we want to go with a high velocity kind of sales mile that’s cheaper and easier.” I would argue actually the sales challenge is even greater today because developers and users have so much more power today than they ever had. In the old days you could sell to the corner office and take them out to some nice dinners, maybe take them to the Super Bowl and you’ve got your deal. Now you really got to drive. And that deal decision could be kind of mandated top down. Those days are long gone. You have to be able to get adoption at the user level no matter what product you’re selling. And then that then gives, then you also need to be able to sell high and obviously frame the value proposition in economic terms.

Jyoti Bansal: Okay. So let’s talk about, scaling and organization and the management and leadership lessons as you’ve gone through it. So what are the most painful lessons you have learned?

Dev Ittycheria: So I’ve made my fair share of hiring mistakes and so I would say anyone who thinks, who hires says, things are going to hire perfectly, you’re either hiring way too slow or you’re delusional.

Jyoti Bansal: What would you call a good success rate? How many of them? 10 you get right and it’s a good success rate.

Dev Ittycheria: Obviously the penalty for a senior level hire failing is much more impactful to the business than say a mid level or a junior employee. But I would say if you can be kind of batting 600, 700 on hiring, I think you’re doing quite well. So, you can’t wait too long because you have the pressures of the business and you need to kind of hit timelines. So you’ve got to hire, but you also got to be very judicious about who you hire and make sure you qualify their skills, experiences as a fit to what you’re trying to do.

Dev Ittycheria: I would say in terms of one of the big lessons I’ve learned is that every person has a fit for the stage of company, right? So I made the mistake of recruiting people with a big brand and the big background, maybe they came from a large tech company, but they completely didn’t understand what it took to be part of a small company. At VMC I had 4,000 people reporting to me and everyone says, “Oh my God, that’s such a big organization.” The dirty little secret is I think it’s actually harder to manage 40 people than it’s to manage 4,000 people because when he managed 4,000 people, you’re only managing about eight to 12 people. And there’s obviously a lot of momentum in the business because you want to go up to 4,000-

Jyoti Bansal: You can mess it up really fast. The small one, you can mess it up really one bad decision-

Dev Ittycheria: Yeah a couple of bad hires, change the culture, all of a sudden the dynamics change. And so I think it’s really important to make sure you’re hiring. The second one I think you alluded to is hiring leaders early and almost leading with leadership because a lot of people feel like they need to be involved in every decision. They need to micromanage every decision. But if you hire good people the dividends pay back in multiples. And I would argue that a leader really has to do three things well. They have to recruit well, they have to develop their people and then they have to get their people to execute. If you do a really good job in recruiting, the other two become very easy. If you do an average job in recruiting, you can spend all your time on development, making them, training them, coaching them and all that, but you only have a mediocre outcome.

Dev Ittycheria: So if you can really, really hone your skills and really recruiting the best people. And then the other thing I look for i passion and motivation of the person, right? So sometimes I look to hire the number two person in a role who may not have been given the chance, whether it was a VP of finance who wants to be a CFO, maybe a director of engineering has never been a VP because they never got the opportunity. But you see the hunger, the passion, and then you qualify, do they have the skills, experiences to really make a difference? So finding those people who really have that burning passion is to me half the battle because if they have the passion, they’re smart, they’ll figure it out and they’ll ask for help. And so those are kinds of things.

Dev Ittycheria: The other lesson I have learned is bad news travels very slowly up the organization, but very quickly down the organization. And for people who are, maybe now got maybe you didn’t ever to manage a large team before, but you start a company, you may have 20, 30 people in your team. You will underestimate this point until you live through it. And what I mean by that is like, imagine when you have to tell your boss bad news, you typically will couch and say, “Hey Jyoti, there’s this little customer problem. We’re trying to figure out, but it’s everything, we’re taking care of it.” And you’re like, okay, that’s great. Meanwhile you’re saying, oh my God, it’s a fricking disaster. And so a leader can get very easily inoculated from the real what’s happening in the business because information is always managed up.

Dev Ittycheria: And so I have a rule. Whenever I see something bad, I automatically assume two things. One is far worse than what people are telling me. And two, I’m just seeing the tip of the iceberg, that there’s a much deeper problem. And so obviously I can’t be involved in every meeting, in every issue or every discussion, but I try and kind of do a lot of sampling of what’s going on in the business. Whenever I see something bad going on, then I’ll start peeling back the onion and really dig deep and invariably the issue is much worse than what was being presented to me. And so that’s I think, a very important lesson.

Jyoti Bansal: Yeah, I would say like you. For me though the scariest part when AppDynamics was growing was the first day when I was in an elevator and there was this guy and we were like maybe 70, 80 employees and we just had a new hire and he was too scared to talk to me. And I was like, wow, this is this … It was kind of a scary moment for me because when we were small, it’s like everyone would tell me everything. People will be, “Hey dude, this is wrong.” No one would be, people won’t be hesitant in talking about things. But as the organization grows, it’s a big challenge. Like you know it’s just … You don’t know what’s going on. And I like to say we can fix anything. The only thing we can’t fix is things that we don’t know. And it’s very hard, it becomes harder and harder as you go.

Dev Ittycheria: So the cultural implication for the business is you’ve got to get people to share bad news early and the point you have to say is if you share bad news early, then we can actually do something about it. If you share it at the 11th hour, then there’s pretty much nothing you can do. A customer is going to turn on you or are you going to have a big product delay that you didn’t plan for and maybe you’re thinking of using that customer win or that product release to drive your next round of financing. So that can really have huge implications downstream.

Jyoti Bansal: Great. So one last question, I know we are getting on top of our time here. You have the unique advantage of taking two companies or the unique honor of taking two companies public. So what do you think about like when people talk about like should we go public or not? And you know, it’s like for a lot of companies these days there’s a lot of private capital. So people are debating is IPO the right path or remaining private is better? What are your thoughts on that?

Dev Ittycheria: Yes. So I’ve actually been involved in five IPOs. So one as an employee, one as a section 16 officer to a CEO when and one as a board member. I think that’s five. And some of them did not go well. And so I would say if you want to take your company public, you have to make sure your company’s ready on three dimensions. One, operationally. Can you do what you say and say what you do consistently? Second is fiscally. Do you have the financial profile, the cost that public investors would consider you an attractive investment? And I think it’s been said in this conference you’ve got to have a certain level of scale and certain level of growth and so forth. And then the third one I would say is culturally. Are you prepared to be a public company?

Dev Ittycheria: And what that really means is you have to really bounce short term and long term. And public investors tend to be very corely driven. But there are some investors who also are betting for the long term, in fact they’re probably paying a price because they’re expecting an outcome on expectations of the next say four to six quarters. But you have to be able to balance short term with long term. You can’t be so short term focused that you’re just managing quarter by quarter because you’ll hit a wall. But you can’t just ignore the quarter and say like I’m just focused on what’s going to happen at the end of 18 or 2019? So that’s the issue that you have to really think through and not every company needs to go public. And obviously companies today are now waiting longer to go public.

Dev Ittycheria: But it is not like the natural outcome for all companies. It’s very reasonable and rational to get bought. And obviously that was a decision that AppDynamics went through. It was actually contemplating going public for a couple of years and at the 11th hour someone’s swooped in and with the benefit of hindsight, that was the best decision for not only the investors and the employees, but everyone, but not every company needs to go public. So if you do go public, the third thing I would say is you need to be acting like a public company, almost like 12 to 24 months before we go public. In terms of how you close your books, how you manage your numbers, how you hold and your team accountable to hitting those numbers. Because what you don’t want to do is to go public and then have a shock to the system. Say, “Oh my God, I never realized I had to deal with all these issues.”

Dev Ittycheria: And that’s where people kind of hit a wall. And so that’s I think really important. And it’s good training because it’s kind of like when you’re a founder and you’re just bootstrapping the company it’s just you, yourself and your team, your talk. But then you get an investor and all of sudden the investor wants board meetings like, oh my God, this is a pain. But that’s just an act of growing up for a board meeting forces you to assess the business on a monthly or a quarterly basis. What’s going well? What’s not going well? Where do we need to focus? Blah, blah, blah. And going public is like another form of maturity. And now we have public investors who we have to worry about and make sure that we understand what their concerns are and also take stock of where the business is.

Dev Ittycheria: And the one slight nuance is public investors also tend to care about metrics that you may not actually manage the business by. One example of that will be billings. Billings is financial metric that probably you don’t really worry about today as a private company. But that’s the reason public investors care about that is because bookings, is not a gap metric. So billings is their way of trying to get a sense of how the business is doing because revenue for most subscription software businesses is a lagging indicator, not a leading indicator. So the only way they can get a sense of how healthy is the business is by looking at billings. But that there’s implications like if the customer pays you upfront, that helps billings. If they pay you over time, that doesn’t.

Dev Ittycheria: So these are all things, the nuances that all of a sudden you have to really have your arms around because the script is going to have some expectations. And there’ve been a couple of IPOS that went public last year, MuleSoft and Cloudera who did fine on the revenue line, but then missed their billings number and the stock dropped by like 30%. So these are things that you do need to worry about as part of a public company.

Jyoti Bansal: Okay. So we are at the top of our hour. I wanted to thank you for a great conversation here. It was a pleasure talking to you. Give a big hand to Dev here.

Dev Ittycheria: Thank you.

Published on January 15, 2019

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