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| Home - Venture Profile - Dec 03 Issue |
Venture Profile: Aneel Bhusri, Greylock
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Angel Mehta: If you were a CEO of a best-of-breed player today, and I know you sit on the Board of a few, what would your strategy be for selling against the larger players? Can it be done in a market where there is so much uncertainty about vendor viability?
Aneel Bhusri: I would only invest in a company where the offering was clearly not on the radar of what the large guys were doing because I think, at that point, it’s not worth playing the game. The big software vendors, even if they don’t actually have the product but have it on a roadmap, can very easily tell prospects to ‘wait 6 months and we’ll have that product for you’. If I were a customer, I would wait for the larger player to make good on their promise. So to consider buying an offering from a smaller best-of-breed company, it has to be a very innovative product. There has to be a lot of intellectual property…for example, in the case of supply chain applications, there needs to be very intensive algorithms that aren’t easily replicated. The products that we’ve invested in sit at the boundaries between ERP and CRM and Supply Chain. The boundaries between these areas are not naturally covered by a packaged suite. So we don’t necessarily have to sell against the big guys. Unless you have an offering that is an order of magnitude better, I think is pretty much a worthless exercise to try and sell against the larger players.
Angel Mehta: Let’s talk about the ASP business model…there was a tremendous amount of hype early on with Corio and US Internetworking. I know you were on Corio’s board. The flame had dimmed down on that space but Marc Benioff (Salesforce.com) has been in the public eye a great deal over the last 12 months and certainly Salesforce.com seems to be succeeding in a way that other ASP’s have not. Why do you think that is?
Aneel Bhusri: What Corio and what USI have done is very different then what the SalesForce.com has done, though Corio is actually doing quite well and is starting to trend-up again – they turned a corner for profitability just recently. But in general, the space was over funded…there were too many competitors and everyone tried to grow too quickly. I think it was just a symptom of the bubble. The value proposition of Corio hosting other people’s applications like PeopleSoft and SAP and Siebel applications and delivering it at a lower cost basis then what the customers can do for themselves is a terrific value proposition. We’re finding larger enterprise customers who are doing it. You’ve seen IBM get into it, Accenture get into it…EDS is in it. Frankly, I think that the reason most of the ASP startups failed is because they didn’t run themselves that well. They burned through too much capital and they were hoping that revenues would take care of their cost structure.
Angel Mehta: What do you think about SalesForce.com?
Aneel Bhusri: SalesForce.com is a different model. They tend to focus in on smaller-size customers and they write their own software, and that’s the big difference. I think it’s a great model and a huge market opportunity. We’ve got a portfolio company called “RightNow Technologies” that’s based in Montana that’s similar to SalesForce.com, with a focus on customer support as opposed to sales force automation. Right Now is doing very well.
The point is, Salesforce.com tends to work well for mid-size organizations and departments of larger companies, which is a great market opportunity for them. But when you move upstream to larger customers, those types want the functionality from a PeopleSoft or a Siebel-calibre product and in the cases where buyers don’t want to support running it in-house, they look at a Corio type player. The reason I think Sales Force right now has been so successful is they’ve targeted the mid-end of the market that, until recently, didn’t have many offerings to choose from. High-end products were too expensive.
Angel Mehta: Do you think Sales Force has the ability to displace Siebel at the high-end?
Aneel Bhusri: I am skeptical. I think you’ll see pockets – a company here, a company there, where they’re able to displace them but for most if they believe that a hosting solution is the right one they’d probably go with the Corio/Siebel combination because they get all the Siebel functionality and they get the benefits through Corio as the host.
Angel Mehta: Let’s talk some more about the concept of realism when building early stage companies. Have you read, “Good to Great?”
Aneel Bhusri: I have not, though I’ve read some of Jim Collins’ other books like ‘Built to Last’ and ‘Beyond. I have read some of his other books…like “Built to Last” and “Beyond Entrepreneurship”.
Angel Mehta: Well the concept I wanted to discuss comes from “Good to Great” where Collins’ states that great companies focus on a very simple business proposition that meets three criteria: First, that the executives are passionate about it, second that it is something the company can truly be the best at, and third that the business is commercially viable. But the interesting thing is that he says it usually takes companies about four years to discover what their hedgehog focus will be.
So what I’d like to know is, as a general partner, if an entrepreneur or management team sat in front of you and said, “We’re not really sure what we’re going to be the best at….it’s going to take us four years to figure it out”. Would you have the patience to wait that long? Would you still be open to the notion that this could be a viable company?
Aneel Bhusri: To wait four years? If it was an either/or, I probably couldn’t wait four years. But I think what we would be comfortable with is investing a smaller amount of money in a start-up with the entrepreneurs who have this premise and are going into it knowing that the concept is going to get tweaked and adapted to fit the marketplace over time. It may take 3 or 4 years to get it absolutely right, but it doesn’t mean that nothing gets done in the first four years.
What I typically see is that when you make an investment, the first 12 to 15 months is getting out that initial product. From year one to year two, it’s getting the customer feedback about that first product and making the product more palatable to the next set of customers and the marketplace at large. From years two to four, it’s making that process better and better and with that also figuring out the marketing strategy, the distribution strategy. For a company to get all of that right in the first two years is very hard to do. You don’t have enough feedback from the market; four years is probably a more realistic time. It’s a continual journey as opposed to a point in time.
Angel Mehta: What do you think about the notion of celebrity CEO? There have been a few studies published recently that question whether it really makes sense to bring a new CEO into a startup right away…. How involved do you personally want the entrepreneur to be after funding a company?
Aneel Bhusri: I think every situation is unique. By most standards, Greylock probably pursues the celebrity CEO less than others. You have to be careful about bringing in “the superstar” outside CEO and make sure that they don’t screw up the company – it’s happened more than once, usually because the new CEO either lacks vision, passion, or may not be a good cultural fit with the existing team. What you want is a CEO that fills the gaps that may exist with the current team…if it’s a strong engineering team, you want a CEO who is strong in sales – and vice versa. My own personal experience has been to look for candidates that are hungry for their first CEO experience, that have all the tools but have not actually been CEO before.
Angel Mehta: Don’t you find it risky to hire CEO’s that have never done it before? I find most venture capitalists to be extremely risk-averse when picking the CEO…what is special about candidates that are first-timers?
Aneel Bhusri: They want to prove themselves. Some of the very successful star CEO’s, they don’t have that same hunger and passion as the candidates that are taking on their first CEO job. First time CEO’s, provided they have the right skills, have got a real burning desire to prove themselves and build a great company…they want to leave their mark.
Angel Mehta: Would you pick someone who is hungrier with less competence over, let’s say, a little bit less competence versus a guy who knew everything there was?
Aneel Bhusri: Maybe not less competence. I would hope for equal competence and less experience. I would take less experience. I’d make that trade-off between hungry and driven and wanting to prove themselves and have less experience then someone who has been there, done that before. Not to say we haven’t had great success with people who have established track records…but you have to really understand the person’s motivations to see why they actually want to go through that process again. Running a startup is hard – it’s just a lot of work, 24/7 – and it’s not for everybody.
Angel Mehta: If you could point to one critical thing that absolutely has to be in place to build a great company, what would it be?
Aneel Bhusri: I think one of the things I learned from the PeopleSoft experience in hindsight was that there’s nothing that replaces a great market. No matter how great the team is, how great the product is, if you don’t align yourself with a great market opportunity, it’s hard to build a great company. That sounds simple but in some ways it’s not so easy to remind yourself to do that. When I was with PeopleSoft, I think I took the experience of it for granted…
Angel Mehta: You mean you assumed that you’d be able to duplicate that same success every time?
Aneel Bhusri: Sort of, yes. But now, I realize how hard it would be and how unique the PeopleSoft experience really was.
Aneel Bhusri joined Greylock in 1999 from PeopleSoft, where he was named vice chairman (1999-2001) after several years as the company's senior vice president in charge of product strategy, business development and marketing. Feedback on the interview can be sent to: abhusri@greylock.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
 
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