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Venture Profile: Aneel Bhusri, Greylock
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: You moved up through operating roles at PeopleSoft to the position of Vice Chairman – which is unusual for a person that started out in finance. Tell me how that came to be?
Aneel Bhusri: After graduating from college, I joined Morgan Stanley as a Corporate Finance Analyst in New York for several years. I then went off to business school, and during the summer between 1st and 2nd Year I worked at Norwest Venture Partners for a guy named George Still, who happened to be on the Board of PeopleSoft. He is a terrific guy and is currently a managing partner at Norwest. He became a mentor and when I was coming out of business school, he encouraged me to go see Dave Duffield, who of course was the CEO and founder of PeopleSoft. So in 1993 I joined a small little HR software called PeopleSoft.
Angel Mehta: How long was your tenure at PeopleSoft and in what capacity did you start out? I’m interested because we don’t often see someone move into a board position starting from the ground floor unless they were part of the original team.
Aneel Bhusri: I started out as Director of Planning…entry-level jobs, working for the head of business development. A few months later, I started working directly for Dave Duffield…in terms of tenure, I was an employee of the company from ’93 to ’99. From ’99 to 2001 I was the Vice-Chairman and on the Board of Directors. Since 2001 have been on the Board of Directors. At the time, who would have predicted it would grow into such a large company? I think there were a couple of hundred employees back then, at most. In those early days, PeopleSoft was primarily an HR software company; they were not an ERP vendor yet.
Angel Mehta: Dave Duffield has always been recognized as a great leader…tell me about your experiences working for him?
Aneel Bhusri: Dave is one of the great human beings on the planet. Whereas you have so many egos in Silicon Valley, Dave doesn’t have an ego at all. It’s because of him that from its inception, PeopleSoft focused on doing business the right way. What I learned from him was that it was in fact possible to instill a culture around the principles of having fun, maintaining integrity and innovation and build a great company along the way.
The other thing is that Dave was fanatic about customers…
Angel Mehta: Doesn’t every CEO say that, though? What made Dave Duffield so different?
Aneel Bhusri: Dave Duffield was fanatic about it. He would drum it into everybody’s head that that was our purpose; that was our reason for being. He would tell customers that on his gravestone it would say, “Dave Duffield – he had happy customers”. It was exactly the right culture. The takeaway for me was that with all the start-ups I work with, I try and instill that same customer-oriented culture. Bottom line, Dave was an incredible CEO.
Angel Mehta: Do you think PeopleSoft has been able to maintain that aspect of the culture? Generally, the larger a company gets, the harder it is to maintain the culture it had when the core team could touch every aspect of the business…
Aneel Bhusri: Absolutely. To this day, I think that’s one of the core principles of the PeopleSoft culture. Craig Conway has done a great job after Dave. He has taken it from a billion dollar company to a $2 billion dollar company, while still retaining that customer-centric culture. That’s not an easy thing to do.
Angel Mehta: So why did you make the decision to leave PeopleSoft? How did the move to Greylock come about?
Aneel Bhusri: By 1999, PeopleSoft got to a size where I just wasn’t qualified to be part of the executive management team. I hadn’t been at a company that large. I think the value I brought to PeopleSoft had to do with strategy and products, innovation and creativity… but that’s not what the company needed at the time. The company needed someone like Craig Conway who was very very strong operationally and knew how to put all the right business processes in place. The part that I love and the part that I loved about PeopleSoft was the innovation…creating products out of nothing. In venture capital, that’s exactly what you do. I had worked for George Still at Norwest the summer before going to PeopleSoft. It gave me a taste of venture capital and I really liked the business. At an early stage venture firm like Greylock, finance is almost an after thought. So for me, whether it was at the top of the bubble or the bottom, I really just wanted to be in this business. I’m four years into it now and am having a wonderful time.
Angel Mehta: Given that exits are so much harder to come by, I’m curious as to what fuels that enjoyment. Where does a venture investor derive gratification from when the liquidity events aren’t happening as quickly?
Aneel Bhusri: I think now is a great time to be in the early stage VC world. There are some great entrepreneurs coming out with some very innovative and disruptive technologies. Back in the bubble everyone was trying to get something that was incrementally better so they could sell $10 million dollars worth of product and take the company public. Today, entrepreneurs are much more focused on solving really difficult technical problems – and problems like that are usually the basis for businesses that last a lot longer then many of the bubble-era companies. To be honest, I’m glad the bubble is over…I’m glad we’re back to some sense of normalcy.
Angel Mehta: Let’s talk a little bit about the application side of the software industry. Do you feel there is still opportunity for early stage application players that are not just a subset or an extension to one of the larger application vendors?
Aneel Bhusri: I think there is still opportunity, but it’s more crowded and those opportunities are harder to find. We see a lot of start-ups that are just automating another business process that has not yet been automated by an ERP or CRM vendor…
Angel Mehta: You’re referring to players like SAP, Siebel, Oracle, PeopleSoft, etc.
Aneel Bhusri: Right. And frankly, the startups that seem to be automating some random business process aren’t that interesting because there’s not enough defensible intellectual property in them. Then there are those application startups that tackle a specific vertical market problem…for example, a claims application for financial services. Product lifecycle management is an opportunity…There’s also opportunity to capture information in a new type of application. We invested in a company that captures agreement data or contract data and tries to build a layer on top of ERP and CRM. So that’s another interesting space, but it’s still niche-oriented.
Angel Mehta: When you are evaluating business plans that are focused on just one vertical-application, how do you get over the problem of market size? By definition, isn’t the startup going after a small market?
Aneel Bhusri: They are smaller markets, but there have been some great companies built pursuing just manufacturing, or just health care. In the case of financial services, there are a number of claims processing companies that became successful businesses. See, my goal is to find businesses that I can forecast up to maybe $20 to $30 million dollars in revenue. After that, who knows? We think this idea of finding a magical billion-dollar market that you can pursue is a fallacy. If you can get a business to $20-$30 million in revenue, then you see where you go from there and hopefully there’s another market to go to or maybe your particular segment turns out to be a lot hotter than you originally thought.
Angel Mehta: Worse case scenario, you find an exit for the $20m business that gives the stakeholders a decent return…But to me that sounds incredibly contradiction. Most venture investors are insistent that you have to find a billion dollar market and insist on homerun investments only or it’s not worth pursuing. It’s the standard line for most of the investors I talk to…
Aneel Bhusri: Sure, I think that’s conventional wisdom and works great - in hindsight. Unfortunately, it’s not easy to figure out those billion dollar markets upfront or everybody would be a venture capitalist. [Both Laughing]. When I joined PeopleSoft, as much as I’d like to say I thought they were going to be a billion dollar Software Company, I didn’t see it. No way. Who knew that HR software would turn to be the starting point of something that would turn into ERP and then turn into something so large? I saw it getting to a couple of hundred million dollars, but the way ERP and CRM took off… very few people could have predicted how big that market became.
You should talk to the early people at Cisco…I was at Morgan Stanley when Morgan Stanley took Cisco public. It was an interesting networking company, for sure, but no one would have ever thought it was going to be a company with market capitalization of over a hundred billion dollars! It was trading at about $200 million market cap for a long period of time. Then the Internet came along and Cisco had the right product at the right time… but you couldn’t have predicted the Internet back in the early 90’s.
That’s the way Greylock views it and I think it’s based on having been around lots of companies and realizing that some of our most successful companies weren’t successful overnight. When we made the investment, there wasn’t a billion dollar opportunity that was just sitting there in plain sight. The teams had to be flexible enough to navigate their way to large market opportunities and a lot of things just had to fall into place.