Over the next three days, DataFox will summarize the SaaStr 2016 panels. If you miss the tactical theater or strategy stage, are networking on the ground, or didn’t get a chance to attend this great conference, we’ve got you covered.
Special thanks to Jason Lemkin of SaaStr for putting on this conference and giving us the chance to publish these summaries.
New Relic: Scaling Even Faster the Second Time: New Relic’s CEO breaks down building a sustainable company that people love to work at.
In a nutshell:
- Don’t just go after the largest market segment. Instead, choose the one that’s the right size for you to own it.
- Going light on fundraising isn’t necessarily a bad thing; it forces you to think your way out of problems instead of spending your way out.
- Find a balance between building established products, growing ones with potential, and experimenting with speculative products.
Lew Cirne, founder and CEO of New Relic, had a chance to do everything over. He’d pioneered application performance management (APM) software as co-founder and CEO of Wily Technologies, and after its acquisition in 2006, he was ready to start a new company and build on his prior experience. In this panel, he shares his learnings on choosing the right market, fundraising, being a product-oriented CEO and the balance between building new products and supporting existing ones.
Choosing your market
New Relic didn’t go after the largest developer community possible. Instead, it targeted the Ruby on Rails community as its initial market segment: though smaller, Rails offered a tight-knit, engaged niche. During its launch, New Relic reached out to thought leaders in that community, finding advocates and reaping the free marketing that those advocates provided.
“The best marketing is when thought leaders are talking on your behalf.”
As New Relic grew, it targeted three constituencies: developers, who were difficult to please but fiercely loyal to those who made the effort; IT operations, who were the gatekeepers of company-wide adoption; and the business community, who would ultimately decide whether this new software would be worth the money.
As a result of this segmentation, New Relic has developed two different messages:
- How would the product be discovered organically? By grounding themselves in the developer community, New Relic was able to drive new account creation by promoting a modern, easy to use product.
- What will drive greater adoption? Messaging for IT ops and businesspeople focused less on ease of use and more on ROI and standardization. This helped grow developers’ individual accounts into company-wide deals.
The unexpected virtue of leanness
New Relic raised around $3.5 million in its Series A round and $6 million in its Series B. With a relatively small amount of capital, its executives were forced to think carefully about their product and customers. From day one, they had to keep an eye on scalability, and be deliberate about where they invested what money they did have.
“There are times when you need capital to solve problems; there are times when you need smart thinking.”
Cirne argued that going lean is an advantage, particularly now that venture capitalists are less eager to fund early-stage companies. He argued that companies often overcapitalized, unnecessarily diluting owners’ stakes and, perhaps worse, causing them to use their funds as a crutch. Now that investors are more cautious, a company can’t simply spend its way to dominance; it had to prove its worth.
The “coding CEO”
Cirne is famous for his engineering bent: while vacationing in Tahoe with his family, he said, he was struck with an idea, and spent the next 10 days coding while his family went home. That doesn’t mean he should be involved as the technical point of contact on every sales call. Rather than dropping in for 15 minutes (which can easily lose a day’s productivity when you’re on a maker’s schedule), he argued that as CEO, he should only come in to prove that his company is a good partner, not that his product is a good fit.
Big enterprises, for example, aren’t as interested in new features or one-off functionality; they want someone who will be a great vendor for years to come. Demonstrating a commitment to customer success is where a CEO can provide the most value.
The three horizons
All companies face a tension between experimenting with new products, addressing new but proven markets, supplementing existing products and, of course, paying off that mountain of technical debt. As a founder, Cirne often has to balance between engineers who want to work on exciting, new, swing-for-the-fences products, and supporting the company’s mission as it currently exists.
He put the problem in the framework of McKinsey’s three horizons:
- Horizon One: supporting established products
- Horizon Two: moving into new but rapidly growing markets
- Horizon Three: experimenting with speculative products in unproven markets
His focus on Horizon One is apparent: he dedicates 3-6 full days a each quarter to focus on customer success. But while the company can and should focus on its current customers (Horizon One), a small team should be dedicated to Horizon Three. That team should test out new hypotheses, and own the successful products that transition into Horizon Two as “mini-founders.”
This approach, he argued, is essential for managing builders of software, aligning what they want to build with where the company wants to go. He did offer one caution, though: Horizon Three teams shouldn’t feel as though their jobs are on the line if they build the wrong product. Innovation requires failure, and compensation and performance structures should reflect that.