In part I, I talked about how up-front investment in a high-caliber strategic business development function helped to save Loudcloud when an existential crisis hit in 2002.  But the value of strategic business development didn’t end there.  In fact, it was only beginning.

Opsware V1: Single product, single customer

The EDS transaction closed in mid-August, and we started into the fourth quarter of 2002 in much better shape than we’d entered the first quarter.  That said, we still had plenty of challenges.  We were a single-customer, single-product company.  Moreover, the product—software that automated the administration of servers—was powerful but far from ready for broad commercial adoption.  It had been developed solely for internal use by skilled (and somewhat forgiving) Loudcloud system administrators in a controlled environment.  It was difficult to sell and hard to implement, requiring significant process change on the part of the customer’s IT staff.  It wasn’t easily consumable in small chunks, leading to protracted sales cycles and long implementation periods.

Of course, we had 60 great engineers and plenty of cash, and they lost no time starting the work needed to make the software easier for our small but talented sales team to sell.  While they did that, the BD team led the development of what would become a selective but highly productive M&A strategy to turn Opsware into a broad data center automation platform.

Kicking off the M&A strategy

Working closely with the product and sales teams to understand needs and build consensus, we started identifying and prioritizing categories adjacent to our core server automation category and tracking the key players in each.  Together, we developed a set of criteria for acquisitions, including technical factors such as architectural compatibility and APIs as well as non-technical factors like location, team size, culture and financial profile.  As a general theme, we wanted products that fit with our core proposition of data center automation and were compatible with our server product, but were easier to sell and implement, opening the customer’s door for a subsequent server automation sale.  We briefed the board repeatedly to prepare them for specific acquisition proposals to come.  Thus armed for battle, we set forth.

Going into battle

Any good strategy allows for opportunism and, as it turned out, our first acquisition was highly opportunistic and somewhat unusual.  Tangram was a 20-year-old company, publicly-traded on the OTC “pink sheets” exchange, with a market cap of about $10 million.  Their product was IT asset management software, and while their revenues were growing slowly, their 200 enterprise customers were very satisfied with the product.  We seized the moment and picked up $10 million in annual revenue for stock valued at less than $10 million—a bargain.  The deal brought us a complementary, consumable product, 200 new prospects for server automation software and a low-cost base in Cary, North Carolina, that soon became our “offshore” location for support and sustaining engineering.  In short, a good start to our M&A plans, just four months into our new life as a software company.

Our next acquisition, a year later, was much more strategic.  Our customers were beginning to like our server automation product and wanted to know if we could solve their next pain-point: automating the configuration of network devices such as routers and switches.  We identified the four leading players in network configuration management, visited and screened them all, and ran a competitive process to get them competing to sell to us.  (It’s always better to have them trying to convince you to buy than for you to be trying to convince them to sell.)  We got the one we wanted, Rendition Networks, for a combination of cash and stock valued at around $33 million.  In addition to 30 new enterprise customers and a strong engineering team in Redmond, Washington, we would now have an attractive starter product and a combined server-network automation offering that put us further ahead of our only credible single-product competitor, Bladelogic.  Within a year, Opsware Network Automation was generating over 20% of our bookings.  Even better, the Rendition purchase positioned us for a major OEM deal that would further accelerate Opsware’s breakout lead.  I’ll talk about that in the next post.

With servers, network devices and asset management in the bag, storage was the missing piece of the puzzle.  That proved to be harder—there were few storage automation startups to begin with and none that looked like a great fit.  We ultimately did acquire a small startup named Creekpath Systems in 2006 for $10 million in cash, closing their small Colorado HQ and moving a few team members to Redmond.  Unlike our other acquisitions, storage automation proved just as hard to integrate and commercialize as it was to find an acquisition target, and this was the least successful of our purchases.  Notwithstanding that, we now had a unique full data center automation story: servers, network and storage.

Our fourth and final acquisition was in an emerging category called Runbook Automation.  Having automated individual functions such as server provisioning or router configuration, our customers now wanted to automate entire IT workflows across servers, networking and storage, integrating with other systems such as monitoring or ticketing.  Here there were just two viable targets: RealOps in Herndon, Virginia, and iConclude in Bellevue, Washington.  We knew we wanted iConclude, but again a competitive process of negotiating with both companies helped to drive a speedy transaction at a fair price of $54 million in cash and stock in March 2007.  (iConclude’s founder and CEO, Sunny Gupta, now runs Apptio, an Andreessen Horowitz portfolio company).

Although we only made four acquisitions in five years, spending less than $100 million in cash and stock, the M&A strategy played a vital role in transforming Opsware from a single-product player, solely dependent on one giant customer, to a full-suite data center automation market leader with hundreds of enterprise customers.  The acquisitions positioned the company for a major strategic partnership with a technology giant in 2006 and a billion-and-a-half dollar sale to another a year later.

Who you gonna call?

Just like the Loudcloud sale to EDS, Opsware’s M&A strategy relied on many essential ingredients and actors: an aggressive but disciplined management team, outstanding engineering, marketing, sales, legal and finance functions, an acquisition currency and a supportive board.  Again, however, a small effective business development team was there to leverage these assets and drive the process to achieve results while the rest of the company continued to fire on all cylinders.  While we acquired four companies, we evaluated hundreds and gained massive industry insights in the process.

What’s your M&A strategy?  Who’s driving it?

Next up: Strategic Distribution

This series of posts starts off with a short quiz for the startup CEO:

Q: Who’s responsible for developing your product?
A: That’s easy—Engineering!

Q: Who in your company is responsible for selling your product?
A: That’s easy, too—Sales!

Q: Who in your company has primary responsibility for:

  • Mapping and networking your ecosystem?
  • Building long-term relationships and driving deals with strategic partners?
  • Identifying, evaluating and executing acquisitions?
  • Developing and executing your strategy to go global?
  • Working with you to tackle major strategic opportunities, including existential crises?

A: In many startups, the answer to this one is, “That’s no one’s job yet.”  What’s your answer?

Seizing the transformational opportunity

Given the all-consuming nature of a startup, it’s natural to be focused on your own company first, then on customers and competitors.  What’s often under-appreciated is the importance of expanding that focus to cover the other large and small companies around you.

Over the lifetime of any company, there is a handful of potential deals that could dramatically transform the outcome:

  • It could be a high-impact distribution relationship, like Zynga’s company-making relationship with Facebook.
  • It could be a transformational acquisition, like BEA’s home-run 1998 purchase of Weblogic.
  • It could be a deal that saves you in an existential crisis, like the Loudcloud-EDS deal I’ll describe below.
  • Ultimately, it could be a billion-and-a-half dollar exit, like the Opsware sale to HP that I’ll describe in a later post.

Although every company theoretically has access to transformational opportunities, few actually manage to identify them, let alone seize them.  What distinguishes the winners from everyone else is that they are systematically networked into all of the surrounding companies that matter, so they can identify and seize the transformational opportunity when the time comes.

It’s not Sales

Strategic business development is an investment in systematically mapping and networking your ecosystem to drive transformational opportunities.  Although the CEO will be heavily involved at times, it’s not primarily the CEO’s role.  Nor should strategic BD be confused with Sales.  Although very complementary to Sales, it’s also very different in that it doesn’t follow a quarterly cadence.  It’s focused on a very few high-impact events a year rather than a large volume of quarterly transactions, so it should have separate goals and incentives from those of Sales.  Strategic BD should be low headcount and high impact, led by a senior professional operating at a peer level to Sales, Engineering and other company functions.

Strategic BD in action – Loudcloud/Opsware

At Opsware and its predecessor Loudcloud, strategic business development played a critical role in virtually every phase of the company, generating over $140M in direct revenue and contributing fundamentally to the survival and ultimate success of the company.  In this series, I’ll use four examples from 2002 to 2007 to illustrate the unique high-impact role a small professional business development function can play.  In closing, I’ll talk about the characteristics of the function and selecting a person to lead it.

Example 1: Tackling the existential crisis[1]

It was the spring of 2002, a miserable time to be a startup cloud computing company, or managed service provider as we were known back then.  The Nasdaq had peaked at 5,048 in March 2000, collapsed to 2,200 by the time of Loudcloud’s nail-biting IPO a year later, and slid even further following the 9/11 attacks, floundering around 1,800 by March 2002.  In the year since the IPO, the dotcoms who represented half of our customer base had been dropping like flies as the bust took hold.  Our blue-chip enterprise customers and prospects, although highly satisfied with our service, were becoming increasingly skittish about relying on a small Silicon Valley startup for their mission-critical web operations.  After all, much larger, supposedly safe companies like Worldcom and Exodus were turning out to be highly vulnerable to the downturn.  For Loudcloud, “winning” the technical sale only to have the contract vetoed as too risky by the prospect’s CFO was becoming an ever more frequent occurrence.  With revenues and bookings slowing and ongoing heavy costs for data centers, bandwidth, hardware and staff, we were hemorrhaging cash.  After a year of layoffs and draconian renegotiations of our obligations, things were looking grim, but we kept our heads down and soldiered on.

Then came a killer blow.  Our largest customer, a transatlantic foreign exchange trading venture paying us over $1 million a month, suddenly informed us they were shutting down, blowing a gaping 20+% hole in our 2002 revenue.  Marc, our chairman, and Ben, our CEO, interrupted my St. Patrick’s Day family dinner with an urgent summons to meet at Marc’s house.  We had a crisis on our hands and we were going to go bankrupt within months if we didn’t pull a rabbit out of the hat.

We quickly eliminated all of the obvious options:

  1. Replace the revenue?  Impossible in that economic climate.
  2. Cut costs further to reduce our burn?  We had nothing left to cut.
  3. Raise more money?  The capital markets were slammed shut.
  4. Sell the company?  Maybe we could find an acquirer to cover our liabilities, but we wouldn’t return anything to shareholders—and what a tragic waste of talent, time and money!
  5. Shut down?  Perhaps we’d have no choice in the end, but it would be even worse than #4.

As we discussed the sale option, I brought up the business development conversations we’d been having with a number of major IT outsourcers over the past year.  We knew IBM, EDS, Cable & Wireless/Exodus and others were keen to offer advanced managed services to their customers.  They kept losing deals to Loudcloud’s massively superior offering, which was powered by an advanced software automation platform and a super-talented team.  I had been exploring deals with these companies to resell our service, but several thorny issues made the conversations slow going.  Would we end up competing with each other for the same customers with the same product?  How should their offering be branded?  How could we apportion the service level agreement obligations between us?  Could we find enough margin to go around? And so on…

Perhaps inspired by Jameson and Guinness, we asked ourselves an out-of-the-box question: What if there were a way to sell the company without selling the company?  We knew we’d built something important, and we didn’t want to give up, but it was clear this business model wasn’t sustainable.  And so a germ of a deal crystallized in our minds:  Could we convince one of the big outsourcers to buy the managed services business while we kept the software and restarted as a software company?  It was a crazy idea—the managed services business was our entire revenue stream and customer base and was massively unprofitable; the entire IT industry was in massive retrenchment; our software had never been intended for commercial licensing.  But desperate times call for desperate measures, and so the three of us parted that evening with an agreement to give it a try.

In the days and weeks that followed, we crafted and executed a process designed to rouse three conservative, slow-moving corporate giants to action in time to rescue our heroic but beleaguered enterprise.  In a story to be told at another time, we employed the key ingredients of competition, scarcity and unrealistic deadlines to galvanize senior executives at IBM, EDS and Cable & Wireless to drop what they were doing and engage.

Exactly three months later, on June 17, 2002, we announced a deal for EDS to acquire the Loudcloud business—with 50 customers, 140 employees and 100% of our revenues—for $63.5 million in cash.  In addition, EDS agreed to license our automation software, Opsware, to automate their tens of thousands of servers in hundreds of data centers, for a series of quarterly payments totaling $52 million over three years.  We kept 100 employees, changed our ticker symbol from LDCL to OPSW, and started anew as an enterprise software company with no debt, $65 million in cash, a guaranteed $20 million a year in revenue, and one hugely credible customer.  We had sold the business without selling the business.  Within a year, almost all of Loudcloud’s competitors went bankrupt or sold for a few cents on the dollar.

How did we achieve this improbable outcome?  Certainly, we couldn’t have done it without some exceptional advantages, including:

  • Brilliant and committed founders.
  • An industry-leading product, stellar team, reference-able customers, strong brand.
  • A significant dose of luck, including a visionary EDS executive, Jeff Kelly, who was willing to bet on us.

What enabled us to leverage these advantages to save the company in three months was a decision Marc and Ben had made years earlier: to invest in a strategic business development capability.  By the time we needed to engage IBM, EDS and C&W in an urgent dialogue, the Loudcloud BD team had already been engaged in exploratory discussions with them for over a year.  As a result, we knew the executives to target, what their hot-buttons were, the sales deals they’d lost to Loudcloud and what their competitive position was.  Just as important, they knew Loudcloud because we had educated them and their staffs.  If they hadn’t been primed for the discussion, it could have taken six months just to find the right executive and start the conversation—time we didn’t have.

Getting a deal done in three months required a meticulously crafted and executed process, running 24 hours a day at times and involving a few key Loudcloud managers operating in an absolute cone of silence.  We had to turn zero negotiating leverage and big company inertia into high leverage and real urgency.  Each of us had our role.  Every conversation anyone had with the potential acquirers had to be scripted to send the right messages and add to the picture we were creating.  We needed to keep up the competitive pressure.  We needed to share new developments between us rapidly and strategize the next steps in the process at every turn.  We needed to model potential scenarios, craft proposals and counter-proposals, support clandestine diligence and keep the board updated.  All of this while the company continued to try to win sales, serve demanding customers, meet SLAs and manage increasingly unhappy investors.

The process was driven by the business development function.  While the sales guys stayed focused on selling and the engineers on engineering, the BD guys worked on orchestrating and executing the deal.  Ben, Marc and co-founder/CTO Tim Howes (now co-founder and CTO of RockMelt, an Andreessen Horowitz portfolio company) played absolutely critical roles, which they were able to do effectively because they had people running the process who knew the company intimately and whom they trusted implicitly.

Who you gonna call?

When they started the company in late 1999, Loudcloud’s founders could not have imagined the existential crisis they would face less than three years later.  Their decision to invest up-front in strategic business development enabled them to leverage the firm’s unique assets and execute a company-saving transaction when the crisis hit.

Who will you turn to when you face your existential crisis?

Next up: Strategic M&A


[1] My partner, Opsware co-founder and CEO Ben Horowitz, has eloquently chronicled the Loudcloud story in “The Case for The Fat Startup” – appropriately dated March 17, 2010 (St. Patrick’s Day).

I recently had the privilege of attending F.ounders, a unique event for a select group of tech founders and others from Europe, the US and Asia, held in my hometown of Dublin, Ireland.  In the best Irish tradition of limericks, this is a tribute to the event and its own remarkable founder, Paddy Cosgrave.  (For more on F.ounders, check out The Next Web’s article on the event).

F.ounders 2011
A Chronicle in Verse

Prelude
While Old Europe stressed over Greeks,
The Irish did “Davos for Geeks”.
The mix was eclectic
And the pace it was hectic.
They’ll be talking about it for weeks.

Thursday
We started by crawling some pubs
Led by teams of gregarious Dubs.
With two pints of Guinness
Or stronger stuff in us,
We were tempted to head for the clubs.

but instead…
In a booze-induced state of divinity,
The F.ounders converged upon Trinity.
To a beautiful hall
Lined with books wall to wall
Where we steadily grew in affinity.

By the time that we moved on to dinner,
It was clear we were onto a winner.
Don’t look now, but there’s Bono Vox!
And the number of techies here rocks!
Here a Valley guy, there a Berliner.

From there it was back to the Green.
The Horseshoe Bar was a happening scene.
Take some young entrepreneurs,
Add some potent liqueurs,
I’m sure you can guess what I mean…

Friday
Nursing hangovers but otherwise unbowed,
We joined with the Mansion House crowd.
Where the panelists waxed vocal
On social and local
And mobile and payments and cloud. 

Would the wonders of F.ounders never cease?
To the Áras, with an escort of police.
We were spellbound by the resident,
Soon-to-be former President,
The remarkable Mary McAleese.

Then on to the Guinness Hopstore,
For fine food and black stuff galore,
With Riverdance inspiration
We succumbed to temptation,
And ended up on the dance floor.

Saturday
Scott Harrison inspired us with Charity:
Water of purity and clarity.
He held us enchanted
We’d no more take for granted
What flows from our taps with regularity.  

Then dinner under Dublin Castle’s eaves,
Where once were brought rebels and thieves.
But for modern Young Turks,
One of Jim Fitz’s works:
Che Guevara, made entirely of Steves.

And for those of us still on our feet
Off to Krystle, 21 Harcourt Street.
For a mad grand finale
Halloween bacchanal,
A wild drunken Irish trick or treat.

Sunday
As the day broke we made our return
To our blessed oasis, Shelbourne.
To pack up our things.
We’d been treated like kings.
But it was finally time to adjourn.

Coda
F.ounders’ quiet but flawless organization
Showcased Ireland as the top tech location.
While Gaelic hospitality
And easy informality
Cemented a stellar reputation.

But what gives this event its mystique,
You won’t find in any review or critique.
Between the panels and craic,
There was time just to yack.
Conversation made F.ounders unique.

So let’s give a big F.ounders cheer,
For the people who brought us all here.
To Paddy Cosgrave!
And to Daire and Dave!
To the F.ounders team!  See you next year!

Slán agus beannacht libh go léir!

This is the final installment in a five-part series on building a global company from the ground up.

Summing it all up

We’ve covered quite a bit of ground together since I started this series.  Here’s the executive summary:

  1. There are simple steps you should take to lay the groundwork for international expansion from the moment you start your company.
  2. Before you launch internationally, you should have an explicit, well-articulated strategy.
  3. You should assign a qualified executive to develop the international strategy and drive its execution, and involve the rest of the company in the process to gain their emotional commitment.
  4. A headcount plan and budget that cover both the “visible” and “invisible” requirements will set the business up for initial and lasting success.

Some closing thoughts

In closing, a few reminders as well as suggestions that have worked well for me:

  • As the CEO, look for ways to make it clear to the company that going international is a critical priority for you personally.
  • Involvement builds commitment.  Take the time to get buy-in from your managers and their teams, who are probably already overloaded.  Involve them thoroughly in developing the international strategy, and make sure they get the resources required to support it.  Make it their plan, not somebody else’s plan!
  • Assign a small support team to represent the international operations at HQ and to make sure they get their needs met quickly and efficiently.
  • Enlist one respected manager from each company function for a cross-company oversight team, to drive execution and run interference with the relevant departments as issues come up.  The best people for this are usually not the most senior execs, but director-level thought-leaders who have the respect of their organizations.  They will be honored to be chosen.
  • Remember to treat international as a startup:
    • Be realistic in setting schedules and milestones—it will take longer than you think.
    • Be prepared to live with a startup financial profile—likely several years of losses before turning the corner into profitability.
    • Report on the international business separately from the domestic business.  It should be following a similar (or steeper) growth profile, but several years behind.
    • Be ready for exceptions to corporate policies—compensation for top overseas hires will be a prime example!
    • Make sure everyone’s performance objectives and incentives encourage support for a successful global rollout—performance reviews, 360 feedback, compensation for all key functions should include specific criteria.
    • Challenge your management team to ensure company policies and processes aren’t purely US-centric.  A small example:  all-hands meeting times that don’t require overseas employees to dial in at 3am.
    • When you make your first overseas hires, give them a month at HQ before turning them loose in market.  They need time to soak up the culture, value proposition, products and so on, as well as developing personal relationships with key HQ people they’re going to be working with remotely for years.
    • Send out regular updates on international progress—emails, blog posts, all-hands updates.  One company I’m involved with, Shoedazzle, has set up a live webcam feed between their California HQ and their new London office, so the teams can see each other as they go about their day—great idea!
    • Make it fun and celebrate success.  At Silver Spring Networks, we launched our Brazil operation with a big all-employee party at HQ, complete with Brazilian food, music and caipirinhas.  We turned the World Cup into another great opportunity to celebrate our becoming a global company, screening the matches live at lunchtimes.
    • Finally, protect and nurture the international business.  When the domestic business has a revenue shortfall or a product slip, it’ll be tempting to take it out of international.  Don’t—it will send a message to your employees, overseas teams, customers and partners that international is a second-class citizen, and you may never recover.

In conclusion

If you’re really serious about having a big impact and delivering a great return for yourself and your investors, you have to build a global company.  While you may not be ready to cross the border yet, you should be talking and walking the talk as a CEO from the beginning, and building global thinking into the company’s DNA.  As soon as you can afford to, assign a respected manager to lead the development of an explicit international strategy and plan, with participation from all key functions of the company.  Assign the resources to make it successful, and protect it when the domestic business hits a bump in the road.  Remember—your growth in three years should be coming from countries you’re not in today.  Bon voyage!

Comments or questions?

I welcome your comments and questions.  If the comments box is not showing up below, click on the title at the top of the post and it should appear.

This is the fourth in a series on building a global company from the ground up.

A startup within a startup

Doing a startup is really hard.  No one in their right mind would consider doing two startups in parallel, would they?  And yet that’s what going international is:  a second startup inside your first one.  And like any startup, it needs people and money to succeed.

Two key questions

Once you’ve got your strategy (see Part 2 for more on strategy), you still need to answer two key questions before you can pull the trigger on international expansion:

  1. How are we going to staff it?  There are two pieces to this—Visible and Invisible:
    • Visible: new people dedicated to international, whether at HQ or in country.
    • Invisible, but just as critical: existing people in the current organization who will need to do additional work to enable it—engineers for internationalization, support staff for ticket escalation, HR people for recruiting and comp work, lawyers for incorporation and tax strategy, etc.
  2. How are we going to fund it?  Again, two pieces:
    • Visible: direct costs for new people, facilities, travel, etc.
    • Invisible: the hidden costs of the additional work required from the rest of the organization.

While you can’t ignore the visible direct costs, there’s a great temptation to ignore the invisible piece: “Come on, we have a great team, they’ll just get it done.”  That’s a big mistake.

In my first international startup role, I experienced that first-hand.

@Home – From beggar to banker

In early 1997, I was recruited to start up the international business for @Home Network.  It was a unique opportunity.  The two-year-old domestic business was growing like a weed, serving American consumers’ insatiable desire for the broadband Internet over cable the company had invented.  Investor interest was equally high, and within three months of my joining, ATHM had become the newest high-flying stock on the NASDAQ, with a market cap of $30 billion on $48 million of projected 1998 revenue (these were, after all, the dot-com days).  The domestic business was on a defined track to profitability, with a plan that projected steadily shrinking quarterly losses and a near-term crossover into the black.  Adding in the losses from my international “startup within a startup” would reverse that trend and push out profitability by several years.  And therein lay my problem as the founder and so far only employee of @Home’s international business—a problem common to any international startup inside a domestic parent, whether private or public.

The more new countries we launched, the greater the pain would be—and while Wall Street loved the international growth story, they didn’t want to hear anything about more losses for a stock already priced to perfection.  What’s more, the organization was already stretched to keep up with the intense demands of the exploding U.S. market.  As a result, I enjoyed high expectations and lots of goodwill, but no resources to internationalize code and content, deploy network infrastructure, hire and train overseas teams, or anything else.  Once we had an international strategy, we had to find a way to staff and fund it.  Here’s how we did it.

For each country to be entered, we first developed a detailed two-year startup budget.   Naturally, the budget included the dedicated headcount and other spending we would need to operate in country, but we also budgeted additional heads in each of the HQ functions whose support we’d need to get up and running.  For example, if we needed three months of engineering work to support Japanese cable modems, we explicitly included a quarter of a headcount for that in the budget.  If we expected the HQ support organization to provide Level 3 and 4 escalation support for our Australian operation, we budgeted heads for that too.  If we needed a facilities guy to fly to the Netherlands to spec out a data center, we included that too.  Having quantified the needs, the next challenge was how to fund them.

We found a solution by tapping into the appetite of overseas cable operators, whose cooperation we needed in any case to deliver our broadband Internet service.  I generally don’t recommend joint ventures, but in this case they made sense.  For each country, we formed a local venture (e.g. @Home Japan) jointly owned by @Home and the local cable partner.  The local venture then awarded the @Home parent company a paid 18-month consulting contract to manage the startup—from finding an office to designing the network and server infrastructure to recruiting and training the local team.  The local partner provided the funding (sometimes with some capital contribution from @Home).  Although they grumbled about having to fund @Home’s startup resources, they ultimately realized that this was the way to get up and running faster and with higher quality than any other approach.

This approach transformed my new international organization from beggar to banker.  Instead of going cap-in-hand to beg for support from the VP of engineering, we could tell him, “I can fund two new heads for you, and all their T&E for the trips they’ll make for the U.K. startup.  As long as you meet our service level agreement, it’s up to you what you do with those two extra heads.”  In many cases, VPs would choose to assign their most experienced high-performers temporarily to oversee the startup (which the employees viewed as a nice perk) and used the funding to backfill them with new hires.  In a headcount-constrained company, this approach made international projects very popular instead of an unfunded headache.  It also enabled us to get multiple ventures up and running and transitioned over to local teams quickly and effectively, which made our partners and our investors happy too.  The consulting dollars even gave us international revenues right away, to be replaced by royalties and other direct revenues once the business took off.   Within a couple of years, we had over a quarter of a million broadband subscribers outside the United States.

In short, at @Home we figured out a way to cover the invisible people and costs required to make international successful.  On the other hand, when @Home acquired Excite for $5.7 billion in 1999 and I added responsibility for their international business, I got to see the painful consequences of ignoring the invisible.

Excite – Ignoring the invisible

Like @Home, Excite (a major web portal) was already public and had launched in Europe and Japan by the time we acquired them.  Unlike our international business, however, Excite’s seemed to be pretty unpopular, both inside and outside the company.  The general manager, whom I’ll call Dick, seemed highly stressed when I met him, and for good reason, as it turned out.  Excite had hired 20 to 30 staff in five countries and formed JVs with British Telecom, Telecom Italia and Itochu—and they weren’t getting the support they’d been led to expect from Excite corporate.  While the JV partners were funding some of the local operations, there was no budget or headcount plan for Excite’s support of the international business.  Dick was literally the only California employee with any responsibility for meeting the needs of five country subsidiaries and three large, demanding partners.  Initial goodwill on the part of other departments towards the overseas business soon turned to negativity, as the list of internationalization requests grew longer and it became clear that there was no extra headcount or budget to support them.  The result was weak local ventures, frustrated partners, low morale and a cloud over what should have been an exciting expansion of the business.  As for poor Dick, he was practically afraid to answer his phone or read his email anymore, such was the mismatch between the expectations created and his ability to deliver.

The Excite case is not some exceptional example of particularly bad judgment or poor execution—just an illustration of what is almost guaranteed to happen if you don’t think through your international expansion all the way.

Several ways to proceed

There are ways to replicate the successful @Home approach above without doing joint ventures.  At Opsware, we negotiated a distribution deal with a large Japanese partner, with $5 million in minimum commitments that allowed us to fund the product work, training and local hiring required to enter the Japanese market.  At Silver Spring Networks, on the other hand, we bit the bullet and funded it directly.  In every case, however, we mapped out up-front all of the work required to make our international startups successful and assigned a funded budget for it—down to the finance, legal and HR heads we would need to draw on for tax, incorporation and compensation advice.

Remember—if it’s unfunded, it’s not going to get done.

Up next: Wrap-up

Comments or questions?

I welcome your comments and questions.  If the comments box is not showing up below, click on the title at the top of the post and it should appear.

This is the third in a series on building a global company from the ground up.

In my last post, I discussed the importance of developing an explicit international strategy.  But who should drive the process, and how can you best achieve commitment to its execution?

The Loudcloud experience

The first couple of years of Loudcloud provide a useful illustration of the challenges of rapid international expansion, even in the best-managed companies.  The business had taken off like a rocketship from its founding in late 1999—revenue grew from  $2M to $55M in a year.  While that growth was exciting, it led to a very high financing valuation for such a young company: $820M for a company just nine months old.  High valuations mean high expectations, and bookings expectations for Loudcloud were sky-high.  To add to our challenges, we had over 30 competitors rushing to grab market share.  Faced with a large bookings target and nearly unlimited funding, our head of sales came up with a plan to expand internationally, opening European offices and hiring aggressively to build the business as rapidly as possible.  The entire business was moving at breakneck speed, and the other functions of the company (including sales management) had their hands full just meeting US customer demands.  As a result, the European offices didn’t all get the time and support they needed to achieve productivity.

In the extraordinary circumstances of the time, that was understandable, but it proved costly when the rules changed.  When the recession of 2001 hit, we had three fairly expensive European sales offices with varying levels of productivity and maturity.  While the UK office was contributing, our offices in France and Germany were burning cash that we didn’t have, with few bookings to show for it.  We ended up shutting them down, at a cost of major management distraction and substantial severance and legal expenses, especially related to exiting France.

In any company, and especially in a startup, there are far more things to be done than time or resources to do them.  In a high-growth company, the core domestic business will inevitably tend to consume most of management’s attention and the support of the company’s functions.  Taking the company international is a long-term project that demands sustained effort.  Your international aspirations will go unfulfilled unless you start with an explicit strategy, supported by all of the functions of the company; adequately resourced; and led by an executive with the ability, authority and time to pursue the international business.

Assign an owner from the beginning

Down the road a year or two, once the international business is established, you may decide to appoint a worldwide VP of Sales or Field Operations to run it, or in some cases create a separate International division.  At Opsware, for example, once we hired Mark Cranney (now my partner running Market Development at Andreessen Horowitz) to run sales, we also gave him responsibility for international operations.  However, in a startup situation, I recommend giving the initial responsibility to someone else on your team if possible – particularly if the core business is still heavily focused on the U.S. market. You don’t want quarterly bookings to suffer, or your fledgling global strategy to get hurt by short-term sales pressures, so you should probably not give the role to your VP of Sales, even if she really wants it.

This person’s role is to:

  • Be the voice of international on your team and throughout the company.
  • Become the company’s expert on overseas trends, competitors, partners, users, customers.
  • Get out of HQ: From a very early stage in the company’s life, make frequent visits to key overseas markets to gain first-hand knowledge and build the company’s reputation and relationships – and set up productive, efficient visits for you and other executive team members.
  • Represent the company at overseas industry events.
  • Lead the development of the international strategy, leveraging all of the knowledge gained, and involving all key groups in the process.
  • Lead discussions and negotiations with prospective partners, bringing you and others in as appropriate.
  • Recruit and lead a small global startup team.
  • Potentially manage the initial startup in the first several countries.

Ideally, you want someone with international experience, who knows the company well and is seen as passionate, credible and impartial by the rest of the team. They should be someone you trust to speak at overseas conferences and to represent you in negotiations with partners or launch customers around the world.

This is one of the roles I played for @Home and for Silver Spring Networks, and to some extent for Opsware in its early years. The role demands a ton of time and frequent international travel—at Silver Spring, I estimate my team and I spent 30-40% of our time on the road, with the other 60-70% evangelizing and building capability back at HQ.

Given the time demands, this person shouldn’t have day-to-day operating responsibilities that could suffer.  In my experience, this is a natural role for your VP of Business Development, if you have one that meets these criteria.  (If you don’t, you may need to find one!)

Involvement builds commitment

Your international strategy should be the roadmap that guides the whole company’s pursuit and support of the global opportunity over the next 3-5 years.  Like any strategy, it will be useful if it’s relevant and realistic, which it will be if all key groups in the company have a hand in developing it—from Sales, Product Management and Engineering to HR, Legal and Finance.  Your BD VP’s role is to provide facts and data and context, and to drive a process that enables their participation in an efficient manner.

Ultimately, you own the company’s strategy as the CEO.  Make it clear that becoming global is a critical priority for you, and participate actively in the process.  Broad involvement means broad commitment to the result.  Don’t let it be an academic “staff exercise”!

At Silver Spring Networks, developing a version of our advanced wireless technology to meet European spectrum requirements was a critical element of our strategy to capture the emerging international smart grid market.  We involved key engineers directly in understanding the business opportunity—not just the technical requirements—and exploring strategic alternatives.  Thanks to this involvement, the engineering team became key partners in enabling our international success, despite a busy roadmap for the U.S. business.

From strategy to action

Once the strategy work is done, roll it out to the company and make it your personal mission as CEO to make it sure it’s translated into action.

I’ll talk about that in my next post.

Up next: Execution

Comments or questions?

I welcome your comments and questions.  If the comments box is not showing up below, click on the title at the top of the post and it should appear.

Twenty-five years ago, I funded my Stanford MBA by becoming a junkie—a spreadsheet junkie, that is. IBM had just acquired a high-flying Silicon Valley technology company called ROLM, and the IBM execs needed data and analysis to manage and track their progress against their business goals. As a young engineer just entering the business world, I was surprised by just how extraordinarily difficult it was for managers to obtain relevant information on a timely basis to guide their decisions—even in the corporation that invented business computing.

Their difficulty was my opportunity, and I earned many thousands of dollars writing ever more sophisticated Lotus 1-2-3 macros to automate the extraction and analysis of market data for my new white-shirted bosses from Armonk, NY. The money’s long gone, but the key lesson from that time remained with me as I advanced into more senior management roles in six subsequent companies: for a manager trying to make high-quality fact-based decisions every day, it’s really hard to get good data.

Business Intelligence – Big Market, Low Satisfaction

It turns out that it’s worth a lot of money to customers to try to solve this problem. In fact, their willingness to spend has funded a lot more than just my MBA in the last 25 years. It’s spawned a $25 billion industry known as Business Intelligence, or BI, devoted to extracting and making sense of the masses of data trapped in corporate IT systems, with a couple of billion dollar revenue companies (Business Objects and Cognos) and one half-billion dollar company (Hyperion), along with thousands of smaller software companies and consulting firms.

But these companies achieved this level of success without even really solving the problem. For many IT buyers, traditional BI solutions came to epitomize everything that was wrong with large-scale enterprise software.

  • Just to get started required a spend of at least a million dollars on software and hardware, with maybe another million on consultants for deployment and integration with a separate data warehouse, as well as the unwieldy ERP or accounting systems that were the source of the data.
  • Maintenance and upgrades cost another 20% a year.
  • Deployment would take six to 12 months, by which time user requirements might have changed.
  • Trying to add a field or two to a dashboard, or create that new report format requested by the CEO might take weeks because changes and ongoing maintenance typically depended on a small team of dedicated experts with deep knowledge of the back-office systems and BI solution.

It’s no wonder, then, that many traditional BI implementations fell well short of their promise—confined to a small set of users and dashboards, or even shelved entirely.

As a result, that first wave of big BI pioneers is no longer with us, at least not as independent companies (SAP bought Business Objects for $6.8B, Oracle bought Hyperion for $4.5B, and IBM bought Cognos for $4.9B—all in 2007). In their defense, they did a pretty remarkable job with the technology and software business models of the time and created billions of dollars of value for their shareholders. Furthermore, their solutions continue to generate sizeable legacy software sales and consulting revenues for their new parents.

BI in the Cloud – The Chance to Do it Right

Business users’ appetite for timely, relevant information and analysis for decision-making hasn’t diminished since I wrote my first Lotus macro back in 1984. In fact, it’s stronger than ever. What has changed fundamentally in the last few years is our ability to meet enterprise customer needs efficiently and effectively.

The SaaS delivery model means the customer starts to see value from their software within days or weeks, with an up-front investment of thousands, not millions of dollars. Changes and upgrades are seamless, and included in the monthly subscription. The cloud enables consumption to be scaled up and down on demand on a pay-as-you-go basis. The platform shift to SaaS and cloud computing creates an opportunity to finally deliver on the promise of Business Intelligence.

Like their peers in other large established software categories, the old BI vendors are valiantly striving to port their legacy client-server stacks to the cloud. In any platform shift, however, the big winners are the new entrants who designed their product and business model around the new platform from the beginning.

Introducing GoodData

Just like Salesforce.com in sales-force automation and Netsuite in cloud-based ERP, we believe there’s an emerging opportunity for the right new entrant to build a giant new franchise in BI. We’re putting our money on GoodData. We’ve followed the company closely since we invested in their original seed round, and we’re delighted now to be leading a $15 million expansion round to capitalize on the strong lead they’ve established in BI for the cloud.

Our enthusiasm starts, as always, with the Entrepreneur. CEO Roman Stanek is that powerful combination of brilliant product visionary and compelling sales guy. He started two successful software companies, Netbeans and Systinet, from his native Czech Republic prior to founding GoodData in 2007. He’s assembled a stellar team to pursue the BI opportunity and they’re executing very well.

We’ve been highly impressed with GoodData’s Product. Like its market-leading peers in other SaaS categories, GoodData was built on a multi-tenant platform designed expressly for the cloud. Unlike other BI offerings, it’s a complete solution, avoiding the traditional struggle to integrate one vendor’s BI product with another vendor’s data warehouse. While it can be implemented within days, the product is built for large scale. That’s critically important, because when you offer business users true operational business intelligence on demand, adoption and utilization grow explosively. (For example, there were 2 million report executions on the GoodData platform in July, up almost tenfold in six months.)

GoodData has already signed more than 100 direct and 2,500 indirect Customers, including mid-sized enterprises like Enterasys Networks and Pandora, as well as large corporations like Time Warner Cable and Capgemini. When we spoke to them, they said things like:

“The great thing about GoodData is that it’s been valuable right from the beginning – no waiting game…Our sales team now has direct access to metrics that used to take days for our engineering team to produce.”

“With GoodData we don’t have to jump through hoops to view our critical data.”

“GoodData has rapidly become our source of truth.”

“It’s put the power in the hands of our end-users.”

GoodData’s target is the ever-increasing number of established enterprise customers now migrating to cloud apps like Salesforce, Netsuite, Google Apps and Zendesk, as well as the new generation of players like Pandora who have built their entire business on the cloud from the beginning. Because cloud applications are dramatically easier and cheaper to implement, customers are deploying far more software than they did in the old world—one customer we talked to already has 18 cloud apps.

Roman and his team realized from the outset that it all starts with Apps: a cloud-based BI solution that provided dashboards, reporting and analytics on top of individual cloud apps as well as across apps—for example, combining website data from Google Analytics, marketing analytics from Marketo and CRM data from Salesforce to produce an integrated Lead to Cash report—would be hugely valuable to these customers. They already support most of the leading SaaS and cloud apps, and the number is increasing by the week.

However, they’ve gone further than that, creating an innovative Partner program called Powered by GoodData that allows leading SaaS and cloud providers to embed dashboards and analytics directly into their own applications. For example, help-desk software leader Zendesk—itself one of the most impressive exemplars of the new generation of cloud-based app providers—makes a compelling solution even more compelling by providing GoodData’s advanced dashboarding and analytics to its best customers.

In Conclusion

Business Intelligence, and IT as a whole, has come a long way since my days as a spreadsheet junkie—and the best is yet to come as the shift to the cloud becomes mainstream. Management’s demand for relevant and timely information for business decision-making will continue to grow, and cloud-based BI will make it accessible to more users, in more companies, than would ever have been possible under the old regime.

As veterans of the original cloud computing company, Loudcloud, we’re excited to add GoodData to the list of Andreessen Horowitz-backed companies that are leading the charge to that brave new world.

This is the second in a series on building a global company from the ground up.

In the first part of this series I discussed the importance of laying the groundwork for a global company up-front.  In this part, I’ll talk about developing an explicit strategy to guide your international expansion.

What’s your international strategy? 

International expansion can happen almost by accident—if you’re a consumer Internet company, you get offered a deal by a big German partner, or if you’re an enterprise software company, your sales guys sign a bluebird deal in Japan to make the quarter—but that rarely turns out well.  The markets you end up in turn out to have limited potential, or the cost to serve them turns out to be a lot greater than you thought.  Customer commitments get missed, or tensions arise between the sales guys who sold the deal and the product people who weren’t involved but now have to deliver it.  All of a sudden, international expansion has a bad name.

It doesn’t have to be like that.  On the contrary, going global can be highly rewarding  for everyone if it’s deliberate and strategic.  Before you make your first move overseas, you should have an explicit, well-communicated, company-wide international strategy that will act as the company’s “True North” as it crosses the border.

Five key questions

Your strategy should address:

  1. What’s our goal?
  2. What countries will we focus on?
  3. With what product(s)?
  4. How will we go to market?
  5. What’s our operating model?

Let’s talk about each in turn:

1.  What’s our goal?  This can be a qualitative statement such as “Be the number 1 player in mobile gaming in the top 5 world markets by 2014”, or a quantitative target such as “Generate 50% of our revenue from outside the US by 2016”—or a combination of both.  It should be big, specific and measurable, because it will set the bar for the rest of the strategy.

2.  What countries?  What countries to focus on, and in what order, is perhaps your most important decision.  Many US companies launch in the UK next, because they speak English and it feels familiar – but is that the next best market for you?  Every new country you enter will require an investment of precious time and money, and will generate a certain return.  In simple terms, you want to prioritize countries offering the most return for the least investment.

That should start with a quantitative, data-driven analysis (aka a spreadsheet!), ranking the world’s countries according to the criteria that define an attractive market for you.

Those should include both Macro criteria related to overall market size—such as Population; GDP per Capita; Internet penetration; Broadband penetration; Smartphone penetration; 3G deployment1—as well as Company-specific criteria.  If you’re an enterprise software company targeting financial services giants, then “Number of banks with over $XB in assets” would be a highly relevant criterion.  For our data center automation company, Opsware, it was Number of servers or Network devices.  Sometimes fairly arcane factors can make one market much more attractive than another:  When I was running @Home International, Availability of two-way cable networks for broadband Internet services made markets like Australia and Netherlands more attractive than much larger countries like Germany.  Competition will almost certainly be a criterion, as will Product fit:  Your product may work with minimal changes in some countries, while requiring months of development work for others. 

This is real work, but it’s a hugely helpful exercise, because it forces everyone involved to think through what makes an attractive market, in terms of both potential and the investment required to realize it.  When you’re done, you should have a ranked top 20 list that will both guide your proactive expansion and give you a fact-based framework to react to opportunities that pop up along the way.

Naturally, analysis doesn’t take the place of judgment—it just supplements it.  You may decide to postpone entry into a market that looks good on the spreadsheet because you believe the company isn’t ready or the risk is too high.  For example, China might look very attractive on the numbers, but concerns about IP protection or ability to enforce contracts might well deter you.

3.  What products?  Obviously, you need product requirements and a product plan for every market you’re going to enter.  Unless you’re lucky enough to have a product like Twitter that works pretty much the same everywhere, that means product management and engineering work, and additional resources to be assigned to getting it done.

4.  How will we go to market in each of the top 3-5 countries?  Another question with major ramifications.  If you’re a mobile app company, maybe a partnership with a mobile operator is the way to go.  If an enterprise company, will you need to hire a direct sales force or can you start with a channel partner?  If you have a freemium model like Box.Net or Splunk, maybe you can seed the top 10 countries by promoting free downloads and then target the most successful ones with direct sales.

If local clones have got there before you (as in Groupon’s case) you have a build/buy decision to make:  Acquiring a local competitor buys you instant market position and a team, but technology that may be hard to integrate and a team you didn’t hire, with values that you may not share.

While every situation is different, and there’s no one right answer, I would generally beware of relying excessively on a partner, and particularly try to avoid joint ventures—more on that another time!

5.  What’s our operating model?  In the rush to launch overseas, this is often the most overlooked question.  The core decision you need to make is which functions you’re going to manage centrally, and which locally.  For example, if a shared global technology platform is a fundamental competitive advantage (as it is for Google, Facebook, Zynga, or Airbnb), then that’s one area where you don’t want to give local autonomy.  In its early years, Yahoo! gave its individual European country teams virtually free rein to develop local versions, leading to a wasteful hodge-podge of inconsistent platforms, petty fiefdoms and internal infighting between European and corporate executives.

Source:  Campaign UK, February 19, 2001

While Google powered ahead with a common technology platform and a clear command structure, Yahoo! Europe never recovered from this failure to pick the right operating model.  Read between the lines of this extract from Carol Bartz’s February 2009 reorg memo:

Regions: There are now two: North America and International. As I’ve said before, international growth is critical for Yahoo!, which has become too reliant on its U.S. business over the years.

The regions deliver Yahoo!’s products, programming and services to consumers, partners and advertisers in local markets. They will partner closely with the newly formed Regional Solutions & Products group in Ari’s organization to help drive a significant shift in how Yahoo! develops products for different geographies. The goal is to have global platforms on which regional product offerings are based.

The North American region—comprised of the U.S. and Canada—is led by Hilary Schneider. The leader of our International region, to be hired soon, will be responsible for a cohesive Yahoo! global strategy and seizing our international growth opportunities. Until we determine who’ll lead the International region, Rose Tsou (Asia), Rich Riley (Europe) and Keith Nilsson (Emerging Markets) will continue to report to me.

Get the sense that an explicit international strategy up-front might have helped?

Operating model decisions drive organization structure decisions:  In most cases, a matrixed structure will ultimately provide the best combination of centralized consistency and efficiency with localized customization and execution:  Local team members reporting dotted-line to a local GM and hard-line to their corporate function (or vice-versa). The org structure will need to change over time as the international business grows in size and complexity.  At the beginning, you should optimize for low overhead and rapid execution, but with enough corporate legal and finance oversight to minimize the risk of bad tax or IP decisions, or worse, fraud or FCPA violations.

Wait—that’s a lot of work!

By now you’re undoubtedly thinking:  I’m already working 16 hours a day, and so is my team—who’s going to do all of this new work?  As the CEO, your role is to sponsor the work and assign someone passionate, credible and independent to lead it.  I’ll talk about that in my next post.

Up next: Assigning ownership and ensuring commitment.

Comments or questions?

I welcome your comments and questions!  If the comments box is not showing up below, click on the title of the post and it should appear.


1 There are lots of good free sources for this data, e.g. CIA World Factbook; ITU; OECD, as well as dedicated sites like Internet World Stats.

This is the first in a series on building a global company from the ground up.

In browsing Quora recently, I was struck, but not surprised, by how many people sought advice on how to expand a startup internationally.  Not surprised, because for many young companies international expansion ranks with M&A as something that’s easy in concept, but difficult to execute well.  (See the many Quora responses, including my own, to Why do companies often fail at international expansion? )

I believe you can maximize your chances of getting international right the first time around if you:

  1. Lay the groundwork from the moment you start your company
  2. Launch internationally with an owner, a strategy and a plan
  3. Apply some key principles and best practices once you’ve launched

I’ll devote a blog post to each of these topics, starting today with the first one.

Part 1: Laying the groundwork

I grew up in Ireland.  With a population of only 4.5 million, it’s a tiny market—so Irish entrepreneurs have to think outside their borders from the beginning.  Relative to his Irish counterparts, the American entrepreneur is born with a silver spoon in his mouth.  He has the luxury of a massive home market—300 million affluent consumers, 30 million businesses, one language, one currency, one culture, one legal system—from sea to shining sea.  Initially, that’s a huge advantage that allows him to build a company of significant size without even needing a passport.  Google rocketed from zero to almost $350M in revenue in four years—80% of it from the United States market.

On the other hand, that huge starting advantage can become a liability when it comes time to expand internationally.  I’ve personally experienced the pain of taking products, systems and processes designed for the US market and trying to re-engineer them years later to work in Europe, Latin America or Asia.  Even Google struggled initially—more on that below.  The good news is that much of this pain can be avoided if you lay the groundwork from the time you start the company.

Talk the talk from the beginning—and walk it too

Even if you’re still far from ready to launch overseas, it’s never too early to start talking and acting as a future global leader.  Based on my experience, here are some ideas to consider:

  • Make the company’s mission explicitly global from the outset.  Mission statements like these set a global tone (the underlining is mine):

GoogleTo organize the world‘s information and make it universally accessible and useful.

Nike:  To bring inspiration and innovation to every athlete in the world.

AvayaProvide the world’s best communications solutions that enable businesses to excel.

FacebookTo give people the power to share and make the world more open and connected.

  • Mix in some international DNA on your management team—consider making international experience an explicit hiring criterion for at least, say, 30% of your positions.  In addition to international perspective, your team will benefit from diversity of thinking.
  • Make internationalization and localization experience mandatory for senior product management and engineering hires.
  • Recruit board members with international experience and perspective.  At my last company, Silver Spring Networks, we killed two birds with one stone, adding the CFO of Nokia to our board for both his international and financial expertise.
  • As you develop product and market strategy for the US market, challenge your team to think about the implications of taking this beyond the US later.  What might we do differently if we wanted to take this to Asia next year?
  • From the beginning, try to track relevant developments in key overseas markets:
    • What countries are we getting most website traffic from? Why?
    • Ask your employees who are citizens of other countries to keep you posted on what’s happening in their home country—they’ll be delighted to do it.
    • At least once a year, make an effort to spend a few days in Europe, or Brazil, or India or China. You’ll come back with a hundred new ideas.
      • Talk to local competitors, customers, partners, investors.
      • Is this market developing differently from or similarly to the home market?
      • What local players are emerging that we need to watch?
      • What user or customer trends offer lessons to improve our product or market strategy?
      • Who might be a great local partner to get started with?
      • Reinforce the global leadership message in all-hands meetings, company emails, one-on-ones, performance reviews—get the message out any way you can, and keep doing it!  Our market is the world!
      • Carve out some time to discuss international expansion at quarterly reviews or strategic offsites.

Make the right code choices from the start

Many entrepreneurs don’t think about it, but they’re making a decision with major ramifications for their global strategy from the moment they write their first line of code.  I was amazed recently when a senior executive from a major emerging Internet company told me that they had neglected to internationalize their code when they started, which would now cost them millions of dollars and months of delay in getting into overseas markets.  In the meantime, local competitors were springing up around the globe.  Don’t make that mistake.

Here are some suggestions:

  • Read the excellent “Beyond Borders” by John Yunker.   
  • Make an explicit decision on internationalization up-front.  Ideally, your code should be fully internationalized, meaning that it can be adapted to different languages and regions (aka localized) without engineering involvement.
  • If your code isn’t internationalized, the problem is getting worse with every line you add.  Bite the bullet and get it done as early as possible.  I highly recommend this Quora post by Yishan Wong about Facebook’s organization-wide effort in 2007 to separate their content from their code and set it up for crowdsourced translation into over a hundred languages.   
  • Facebook’s brilliant use of crowdsourced translation has become legendary among consumer Internet companies.  However, enterprise software companies are also making effective use of their global user community for translation, as Nicholas Muldoon of Atlassian Software explains in his Quora post.  Check out https://translations.atlassian.com.
  • Unless you’re a giant organization like Facebook, it won’t make sense to create your own translation platform.  While it may not work for everyone, I was intrigued when I got a chance to see Smartling’s approach to dynamic website translation. 
  • Although customer-facing code may be the most obvious internationalization candidate, your revenue-related systems are equally critical:  By 2004, more than half of Google’s traffic was international, and the company could boast of 104 language versions and 13 overseas offices—but monetizing it proved challenging initially, due to systems that were never intended for international use.  With a billing system described internally as “fragile” and “glued together”, “the company worried that it might not be able to accept payments from advertisers in some foreign currencies as well as through bank transfer and direct debit in certain locations.”  Don’t let that happen to you.

Protect your IP 

  • Make sure your IP protection plan covers you internationally.  (The Patent Cooperation Treaty process can give you some global protection while postponing the need to file regional or national patents.)
  • Register trademarks and domain names in the top 10-20 world economies.  You don’t want to invest in building a killer global brand only to find someone registered it before you in Russia.

What’s next?

If you take these steps, you should be in excellent shape to execute a winning global strategy when you’re ready to do it.  Of course, to execute a winning global strategy, you have to have a strategy and someone to lead its execution.

I’ll talk about that in my next post.

Up next: Assigning ownership and developing a global strategy.

Give a girl the correct footwear and she can conquer the world
—Bette Midler

I did not have three thousand pairs of shoes, I had one thousand and sixty
—Imelda Marcos

As entrepreneurs who experienced the first wave of the Internet, we regularly recognize ideas from the creative ferment of the late ‘90s being pitched to us in a new form by today’s entrepreneurs. The newest member of the Andreessen Horowitz family, however, is reinventing a concept pioneered by a 1920s startup—and doing so with dazzling success.  (Read yesterday’s post about old ideas made new again.)

A Jazz Age Startup

Back in 1926, an economist and advertising man named Harry Scherman and two co-founders established the Book of the Month Club.  Convinced that bookstores were not catering well to a rapidly-growing and geographically dispersed American middle class with an insatiable desire for literature, these 1920s entrepreneurs offered readers a revolutionary mail-order subscription book service.  Subscribers agreed to purchase a book recommended by the club every month, with no title costing more than three dollars.  If a customer didn’t like that month’s selection, they could swap it for an alternate title from the club’s list.

Scherman pioneered several remarkable innovations that contributed dramatically to the club’s remarkable success.  First, he built the club’s brand as a definitive arbiter of quality and taste.  The “Book of the Month” was chosen by an expert Selecting Committee made up of five famous writers and critics—the literary celebrities of the day.  Being published in a club-branded edition as a “Book of the Month Club Selection” was enough to propel a previously unknown author to mass popularity.  Second, he applied the principle of  “negative response”, in which subscribers would automatically receive a book every month unless they proactively opted out.  Finally, he tapped into consumers’ love of serendipity:  Club members would eagerly anticipate the arrival of each month’s new selection, chosen for them by the “curators” of the Selection Committee.

Scherman’s subscription book business brought millions of affordable, quality titles to a subscriber base of over half a million households by mid-century, and spawned hundreds of mail-order subscription successors throughout the twentieth-century, from Oprah’s Book Club to clubs for CDs and DVDs.   In a sign of a truly great idea, however, Scherman’s concepts are also the basis for an amazing new twenty-first century ecommerce business.

From Jazz to Sole—Introducing ShoeDazzle

I’m proud that Andreessen Horowitz is leading a $40 million growth investment in a company that’s leveraging the Internet to reinvent the fashion business in the same way that Scherman used the postal system to reinvent the book business.  The company is ShoeDazzle, and, while the business is women’s shoes and accessories and many of the concepts are new, the parallels to the Book of the Month Club and its brilliant execution are remarkable.

Every new ShoeDazzle member (now more than 3 million strong!) first takes an engaging 3-minute “style quiz” that allows the company’s stylists to create a monthly selection of shoes and accessories personalized to her individual style profile.  She then receives an email invitation to a personal online “showroom” based on her style profile, with a new selection on the first day of every month.  She chooses her favorite item (or items) for a standard $39.95, and receives them in a beautiful package within days.   She can request an alternate selection, or skip one or more months if she chooses, so the service is highly flexible.

Like Scherman with bookstores, ShoeDazzle’s founder and CEO Brian Lee realized that traditional e-commerce sites offering women’s fashion were missing the point.

Observing the pleasure his wife took from visiting a favorite boutique to buy her latest pair of shoes, Brian and his team set out to recreate and even improve upon that deeply satisfying shopping experience on the Web:

  • They recognized that many women go shopping because they enjoy it, so they focused on making the experience fun and entertaining rather than purely functional.
  • They used the concept of personal stylists to replicate the trust that women feel when they visit their favorite store.
  • Like Scherman with his committee of famous authors and critics, Brian recognized the influence of celebrities on women’s fashion choices, enlisting Kim Kardashian as his co-founder and recruiting an ever-growing roster of additional celebrities as stylists and sponsors.
  • Like their 1920s counterparts, Brian and his team realized the appeal of serendipity and anticipation.  ShoeDazzle members await the first of the month with its new selection with the same avid excitement Book of the Month Club members must have felt as they awaited the mailman with their latest monthly title.  Unlike their Jazz Age predecessors, they can share their experience of opening the box with the whole world.
  • Whereas the closest those 1920s entrepreneurs got to social networks was probably local book–reading clubs, the ShoeDazzle team has been able to leverage Facebook in a truly impressive way to create a truly remarkable social shopping experience and an extraordinary community of almost a million enthusiastic fans.
  • Like Scherman, Brian and team understood the importance of brand, and brand all their products with a ShoeDazzle name that stands for exciting, affordable, quality fashion products, curated by experts and backed by extraordinary customer service.

Transforming the way fashion products are marketed and sold

From Valpak to Groupon, from the Full Service Network to the Internet, from Excite to Google, from the Book of The Month Club to ShoeDazzle—the story of the technology business is often a story of old ideas made new again.  Like their illustrious predecessors, Brian Lee and his team have taken a great old idea, added some brilliant new ideas of their own, put it all into Twain’s “mental kaleidoscope”, and come up with a “new and curious combination” they call ShoeDazzle.  The result is a new and genuinely exciting approach to ecommerce that is transforming the way fashion products are marketed and sold.

We’re proud to be associated with the ShoeDazzle team, and we can’t wait to see where they take it from here.