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Achieving Product-Market Fit That Allows You to Build Billion Dollar Unicorns: Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 4)

Posted on Monday, Jan 12th 2015

Sramana Mitra: 156 customer calls that you made gave you real conversations about real customer problems. Even though you didn’t sell what you went out to sell, this was a great opportunity to immerse yourself in customers and learn what they were really looking for.

Gaurav Dhillon: This is AB testing to the power of a million.

Sramana Mitra: By the way, this is a process that we use for all our customer validation work. Many of our entrepreneurs who have been part of the Entrepreneur Journeys case study series have shared this process of immersion.

Gaurav Dhillon: In the complex software, hardware, and networking business, this is a tried and tested method. I was a graduate student in Computer Science. If I’d done an MBA, I would have learned this. It’s a great lesson because that is what we then refined and built. We said, “Everybody’s going to need to move the data. Everybody’s going to need to connect the mainframe to the client server. Then they’re going to want to do things like data warehousing. Then, they will need integration.” Once we starting pulling on that thread, greater and greater ideas emerged. Looking back, I’m still struck at how fortunate we were to get that early negative signal from the market that we then absorbed and pivoted into the integration business around data. With that, we realized we had something.

We were in Los Angeles. There were three VC firms in LA. Two of them turned me down. The third wasn’t looking good. This is when the rest of the team decided to come up here to Silicon Valley to raise money from venture capitalists. We figured that out back in 1993.

In February 1994, we all came to Silicon Valley. We refined the product and we were able to find seed capital from really phenomenal people. I look back in time with gratitude that I was able to bump into some of the people who had funded Oracle Corporation. These are people who had funded Larry Ellison and Bob Miner. One of them, Bob Oscar, actually wrote my business plan. He was former CFO of Oracle. He saw me struggle with Excel. He was like, “Let me do that.” Eric Arnold of Sutherland was principal. He had been on the board of Oracle. Arnold had funded Business Objects subsequently. With the capital, I was able to attract a winning team. We essentially were a team that made Informatica into a multi-million public company and a market leader in various places across the world.

Sramana Mitra: We’re talking about 1994. What kind of seed rounds are we talking here. What level of capital was in the round of financing?

Gaurav Dhillon: $1.5 million.

Sramana Mitra: How long did that take you?

Gaurav Dhillon: Not far. The beauty of it is many of these companies didn’t waste too much capital.

Sramana Mitra: That’s exactly the point that I wanted to highlight.

Gaurav Dhillon: I’ll segue into where they are today and point out the differences. In a perpetual software business, which is what Oracle was, the key point I want to make is this is inflation-adjusted. Technology was still not mainstream. This was the age of perpetual software. In a sense, these companies are funded by customers. They weren’t really venture-funded. They were funded by the best kind of capital that you can ever get, which is winning customers.

We were very fortunate to have good investors, advisors, and coaches who taught us to become a horizontal platform by looking for lighthouse accounts in different vertical industries. You want to go get the best names in each vertical and you want to do good business with them so that capital can be put into improving the product and hiring more sales teams. In a sense, it works really well in perpetual software because of the nature of that industry at that point in time.

Sramana Mitra: Because you get a lot of upfront cash. That’s what you’re suggesting. It’s harder to do that with a cloud services recurring revenue business model. Is that the distinction you’re trying to make?

Gaurav Dhillon: That is precisely the distinction. We were selling homes and not renting them.

Sramana Mitra: If you’re still building the product and validating, that story is a little bit different. If you have achieved product market fit, typically, the SaaS companies are doing multi-year deals.

Gaurav Dhillon: Yes, but it’s not a perpetual deal. If you want to build a bridge, it’s extremely valuable to own a bridge because you have toll gates, but you have to raise the capital to build that bridge. The other difference is SaaS is not for new categories. The best example I can give you is Workday. David and Neil built PeopleSoft with less than $20 million, I think. Those very same people have had to raise $200 million to build Workday.

For you to build a world-class company, the table stakes are higher. If someone was upgrading from PeopleSoft to Workday, they want much of the functionality they already possess. It’s a not a green field market. It’s a new product for an existing market. Your engineering bench press is heavier. Secondly, your economics are not perpetual economics. They are subscription economics. That said, these companies are worth doing. They are doable because there’s more capital in the world and because Wall Street highly values companies with subscription revenue streams because they have much better visibility into the future. In general, customers want to have that hook. They have been burned by legacy enterprise software business practices. They are not good practices. Some of the tactics used by big enterprise companies are fairly unsavory.

This segment is part 4 in the series : Achieving Product-Market Fit That Allows You to Build Billion Dollar Unicorns: Gaurav Dhillon, Founder of Informatica and SnapLogic
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