The Ledger
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The traditional 80% margin enterprise sales model is going away
“I think that model is basically going away. It's being eaten on the bottom by bottom up, which we can talk about later, and I believe on the top it's been eaten by services.”
Open-source software distribution is being superseded by SaaS models
“I almost feel like open source is just being superseded by any software as a service, and what I mean by that is the following. It's like, as soon as you host something as a service, people don't seem to ask so much about open source, right?”
Technical founders' biggest mistake is assuming products have intrinsic value
“I think this is probably the number one error technical founders make, and it's the following, right? So, alright, so I'm in my lab, and I make my cool thing, my cool widget, whatever it is, and then the big logical fallacy we all make is that whatever, that w…”
Pricing is the single most important decision for enterprise startups
“Especially in enterprise, there is no single decision that you make that's more important or directly tied to your value than pricing.”
Enterprise customers spend $2-$3 on services for every software dollar
“The reality is for every dollar that most customers spend on a vendor product, they're spending two or three dollars on services.”
Startups need around $30M ARR before partners handle professional services
“In my experience, when you hit about 30 million-ish dollars a year, you actually have enough of a market to actually incent the partners.”
a16z data shows top revenue startups almost always overlay direct sales
“If we go through our portfolio, if we go through the data that we have, we look at the companies that actually hit the most revenue, and in almost every case, they overlaid sales on top of the organic growth.”
Cloud incumbents struggle against open-source startups under $100M revenue
“Listen, if you're in the first hundred million dollars Because of revenue, and you're the innovator, and you own the code, I think it's incredibly difficult for these larger incumbents, you know, Google, Amazon, and Microsoft to compete against with you. They …”
a16z requires positive second-derivative growth, as linear growth fails
“We're absolutely concerned with the second derivative. It has to be positive, right? Linear growth, by the way, doesn't seem to work.”
Worrying over $10M versus $20M early-stage startup valuations is myopic
“For me to worry about the difference between 10,000,020 million valuations seems like such a myopic view of the fact that technology is working, and it's disruptive, and the market is like basically the globe.”
Net dollar retention matters more to software investors than initial deal size
“So right now, actually, net dollar retention to investors is probably more important than how much you can get on the first, you know, dollars.”
Many enterprise startups become insolvent by setting prices too low
“I know a lot of companies that don't think about top-down, they set their pricing toe-low, and they end up with either a low margin or just simply a non-solvent business as a result.”
Bottom-up adoption is the biggest meta-disruption across enterprise software
“I think actually the biggest disruption that's happening in, in, in all of the enterprise and it's a meta disruption, and I think it cuts across everything, security, everything else, is that now the enterprise is adopting very much in a bottoms-up way.”
IT services growth outpaces product growth because enterprise products suck
“There's a reason why that, like, the growth in services is going higher than the growth in, in vendor products, man, because, like, products suck, and they're hard to use, and they change all the time, and like, have somebody else, you know, arbitrate that for…”
Scaling enterprise startups evolve through product, sales, and operations phases
“I do believe that companies now go through these stages. The first stage is a product stage. Alright, and like, you don't get out of the product stage until you effectively have an organic motion, or some bottoms up motion, or some brand recognition, and you'l…”
VMware's Nicira business grew from $20M to $600M ARR during Casado's tenure
“So when I, so when we joined, the revenues were under twenty million. When I left, it was six hundred million annual run rate. And I think last year it's public now that it clocked in 1.3 billion. So that was the, like the total bookings of last year was 1.3 b…”
Category creation historically required direct sales led by technical founders
“And as a result, most category creating technologies went to market through a direct sales force, where you actually had somebody representing the product normally, by the way, the technical founder to begin with, to describe what it is.”
Sales reps in category creation environments average just three deals annually
“In a category creation environment, even a really, really, really good salesperson maybe can do six deals. Normally it's about three deals.”
Enterprise software startups must avoid becoming addicted to services revenue
“So here's my view. The most important thing is to have two, two sets of discipline. Discipline number one is you will not be addicted to the drug of services revenue no matter what.”
Structure software services so they can eventually be offloaded to partners
“And I think number two kind of gets mostly to your question, which is, you want the services contracts and services business to follow the model of the traditional services model because at some point in time, You do want to offload it. Now, I mean, I think in…”