Marina Andjekovic

Episode 65: Scaling Data Pipelines with Nick Schrock, Founder/CTO of Dagster Labs

Intro


Mike Schwartz: Hello and welcome to Open Source Underdogs! I’m your host Mike Schwartz, and this is episode 65 with Nick Schrock, Founder and CTO of Dagster, a platform that helps companies create data pipelines, which is critical to transform and update data in order to make it useful, for example, to generate reports, content, or other actionable information.
Dagster might not be a blueprint you can emulate. Like all start-ups, there are some hard to replicate serendipity that enables Nick and his team to build this amazing company. But as Machiavelli says, “Great leaders need both – fortune and virtue.” In other words, you need to be good at what you do, i.e. virtue, but they also need some good old-fashioned luck.

But what separates a really successful founders, like Nick, is the ability to harness fortune and virtue and combine it with some deep insights about the market, and turn it into a profitable and fast-growing venture not easy to do.

So, with that said, let’s cut to the interview, and let Nick tell you, in his own words, how Dagster evolves.

Early Career

Nick Schrock: Great to be with you.

Mike: Nick, thanks for joining us today.

Mike: Can I just go back a little bit and ask you to share some of your story about how you ended from going from the University of Michigan Computer Science to working at Facebook? So, that early period – how that happened?

Nick: Oh, I wasn’t expecting to talk about the preface book days. I’ll do the quick version of that. I graduated from Michigan in 2003, and I actually went to work at Microsoft, right out of school. And Microsoft’s a great company, and they treated me well, but… 

And actually, the division I was in was the developer division. And I thought that they were just extraordinarily talented, but at that time of my life, that wasn’t for me, in terms of working at a big company.
I wasn’t actually sure if I wanted to do software anymore, so I went to the London School of Economics for a year, because I thought I might want to go more into finance, or even government service – you know, I was a young man kind of searching around.

But I ended up getting back into software. I worked for a healthcare start-up out of Ann Arbor, which is where Michigan is, for what – 2 and a half years.

And then, I went to Chicago to try to do a start-up. That was very quickly spun down because me and a friend, who had worked in the finance industry, we wanted to do it, but then, it was about 6 months before the financial crisis.

So, that was incredibly poor timing. I spun that down, and actually, turns out a friend of mine, who I knew from Microsoft, kind of heard that was on the open market, and he just reached out and was like, “Hey, I’m working at Facebook, it’s really a special place. You should consider looking at it.”

And I was looking at staying in finance in the Chicago area. And I flew out to Facebook, and it’s just the vibe difference between a place like Facebook and a hedge fund in Chicago cannot be overstated.

You know, everyone at Facebook was young, super excited, idealistic, the office was incredible – there was just all this energy versus all these miserable people working in the hedge fund. So, the choice was obvious from there. And then, off to the races after that.

Why was Facebook so innovative in 2009-2015?


Mike: So, what was it about Facebook in 2009 that made it such a hotbed of innovation? Like, what new problems were they trying to solve?

Nick: The engineering-driven culture there, combined with the actual product that was being built. So, the product grew at unprecedented rates, it was used in unprecedented ways and was data intensive also, in kind of an unprecedented way.

We were forced to kind of do a lot of innovation on the fly in incredibly constrained environments actually, both in terms of resources, timing – you know, we had to get stuff to work. And I think that it is true that those constraints do breed innovation.

And that time of period was interesting because in 2009 – how to put this – we weren’t really taken seriously as an engineering organization, I felt. And then, fast forward say 4 to 6 years, and we were taken very seriously as an engineering organization.
It was really cool to participate in that. And in the end, if you look at the output from that eng org at that time, it really is pretty extraordinary in terms of what systems were built internally as well as what was open-sourced.

Technical Origin

Mike: So, few years back in 2018, after being at Facebook for, I guess, maybe 8 or 9 years, you decide to start a company called Elementl, which becomes Dagster Labs. Can you talk a little bit about how that came about?

Nick: Near at the beginning of my tenure at Facebook, I helped create this team called Product Infrastructure, whose mission was to make our application developers more efficient and productive. So, concretely what that meant is that we build internal frameworks and abstractions for the engineers who actually built the site and the mobile apps to build product.

That team did a lot of great work, and we ended up externalizing about a bunch of that work in the form of open source. So, React came out of that group – I had nothing to do with React, but kind of the people across the hall from me, so to speak, produced React. And that obviously went on to be an extremely successful open-source framework. And then, what I’m personally more affiliated with is, I’m one of the co-creators of GraphQL.

I’ve lived and breathed developer tools for a long time and also seen the impact that open-source adoption at scale can have. So, that was definitely on the mind when I left Facebook in 2017, and figuring out what to do next.

And in fact, I was going around the Valley and talking to companies, both inside and outside the Valley actually, about what their biggest technical liabilities were.
And this notion of data, an ML Infrastructure kept on coming up over and over and over. And I decided to dig into this, and very quickly I discovered that this area kind of pattern matched to what I care about and the types of problems I want to work on, typically the things I like to work on is to share a bunch of properties.

One are just engineers in pain. Like their dev workflow is broken, they have bad abstractions, they’re not productive, and purely because of tooling and abstraction reasons – that actually kind of makes me angry and frustrated on their behalf. And on a personal level, I feel that is really motivating.

Second involved finding – yeah, I like to call it like “a problem that matters”. I like working on really broad horizontal problems that could potentially have impact on millions of developers, kind of core essential problems that matter.

I was data engineering adjacent at Facebook, I wasn’t a practitioner. Data pipelining is extraordinarily important actually. People like to dismiss it as data cleaning, or they are kind of data janitor work, but when I looked at it, from kind of fresh perspective and I really thought about it, I was like, listen, data pipeline, they produce these assets, these data assets that drive all analytics, all the dashboards that you work with, all the ML models.
And if you really think about it, these data assets drive a huge proportion of human decision-making and automated decision-making in our entire society. Who gets mortgages or not, how do we price health care, what kind of news do you see – these are fundamental essential things, and it needs to be built on solid foundations.

And the fact that it – in my opinion – like, it was not built on the appropriate tools and processes, and everyone felt it was like chaotic and out of control all the time, was deeply disturbing. So, things were fundamentally, and still, in some ways, are fundamentally broken in data ML engineering. So, that’s really motivating.

Another thing, another property is that I like working on technologies that are sort of a strategic point of leverage in an organization. GraphQL fits that bill. Because if you kind of can intermediate all client-server interactions with a common software layer that has rich scheme information and stuff like that, it’s like an enormous point of leverage for tooling.

And in the data space, I quickly gravitated towards the orchestration layer because I felt it had the same properties. You know, orchestration orchestrates data pipelines. That means, it invokes every single runtime, it touches every single storage system as a result. And then, likewise, any practitioner that wants to put a data asset or pipeline into production has to interact with orchestrator in some way shape or form. So, a strategic point of leverage, I thought that was super, super industry.

And then last, like some feeling that you have a technical insight that’s novel and interesting, and that’s kind of how we got to this notion of — at the beginning we called it Software Structure Data Sets, but now we call it Software-defined Assets in data pipeline.

And the basic idea is that instead of just writing a bunch of imperative tasks to string stuff together, you instead think about it, you write a software representation of the data asset that you end up wanting to ship to production and be consumed by our downstream stakeholders.

So, that was a very long answer, but I found a problem that kind of checked all the boxes, for what I like to work on. And it’s not just checking boxes – if those boxes are checked, I’m like deeplypassionate about it. That’s kind of how I got here.

Business Origin


Mike: You started working on this problem at Facebook, but then you said at some point, you sort of hit this critical mass of like pattern matching, like you said. And you’re like, “Okay. I’m going to start actually a business. Maybe in Silicon Valley, it’s not terrifying, but it’s a big step.” How did that actually work? When did you decide, “I’m going to start a company.”?

Nick: It’s funny. I’m struggling to recall exactly when it happened, but I knew founding company was definitely something I was very interested in doing. Both in terms of working on a product, but also building a culture, and especially engineering culture.

In terms of company building, that part was very motivating. In a lot of ways, I was talking about how I thought the kind of the output and culture of early Facebook engineering was pretty extraordinary. And replicating the good parts of that in an independent organization was super appealing to me as well.

I think I just started talking to people and my message and the problem I identified really resonated. And then, I was talking to some investors, actually not with the goal of doing a fund raise – it’s kind of funny how it works like that – but there was like, “Nick, you want to look at data pipelining, with your background and, you know, work on something, that we should really think about formalizing this with some capital and a company, so you can accelerate your progress.”

It’s one of those things that almost just kind of happened. And I’m a big fan of, “Be an opportunistic.” It’s also true that from the time I left Facebook, I knew that founding a company had a lot of appeal to me.

Transition to new CEO


Mike: One of the podcasts previous guests, Sytse Sijbrandij, once asked me, “Do you love the product, or do you love the business?” And it’s an interesting question. I think I know were you following that spectrum. And can you talk a little bit about how you came to work with Pete Hunt, the current CEO, and do you have any advice for founders on how to navigate when there’s a pivot in the leadership?

Nick: I might like the business more than you would expect. I obviously – I don’t want to put words in your mouth – but I’m assuming you think I like the product more than the business. Actually, I did a bunch of economics and business in college and then the grad year in LUC, and I thought about doing MBA, so I’m definitely a business-minded. I imagine I annoy our FinOps people because I always like dig in about all the financial metrics and whatnot.

Yeah, we can get to Pete. I knew Pete from the Facebook days. He was one of the co-creators of React. We didn’t work really in-depth with each other then, but we met each other socially and through each other’s work, and really kept in touch for a long time after Facebook.

He wrote a small seed check into the company. We also collaborated actually on some podcasts because we were kind of obsessed with this Facebook engineering culture, and we actually put together a podcast series, Software Engineering Daily, with like 15 ex Facebookers, and we learned a lot about each other during that process.

Pete had started a start-up and sold it to Twitter, and he was working on Twitter. And I was also talking to him on and off about the business. And I was in the market for a head of engineering in early 2022, and Pete and I discussed it. And I was privileged enough to bring him on board. And given his experience, formerly being a CEO of a Dev tools company, he had built a marketing organization, and the sales organization and scaled to $5 million ARR.

I knew he was going to be much more than a head of engineering – I even had super high expectations for that – but he really dramatically exceeded those expectations. And I think, it became very obvious to me that he was just way better operationally than I was, in terms of like the mechanics of management, organization building, managing marketing, managing sales – he had done it before, and it was pretty clear.

I, at the time – just to be transparent – I was solo founder CEO, I moved around the country a couple times, I had 2 little kids. Now they’re 2 and 4, but I’ve also started a family during the course of this journey – I just needed like a co-founder figure to share the load.

Because I didn’t have the time to work on what my superpowers are, which is kind of this cross-product of Engineering, Dev Rel and Marketing I think is where I excel. And the other stuff is like, he could do a much better job with that. So, it just made a ton of sense.

I think I’m very lucky in that I don’t think it’s a repeatable process for a lot of founders to do what I did. Because you need that other human, who you know well, who would have been I think if Pete had his own company at the time, we might have just co-founded something from day one, and had like enormous trust context in – like, the transition to bring him in and then move him to the CEO position was like super smooth. I think it was like super obvious to everyone they knew it wasn’t going to be like this massive culture shift. Because like Pete and I are still aligned on so many issues.

I think the entire team was super excited about it, and the transition was really smooth – no leadership changes, no attrition, the company started performing better. I think it was obvious pretty quickly that that is the right move.

Monetization


Mike: So, diving into the business a little bit, how does Dagster monetize? I see a cloud offering, is there also a license enterprise distribution?

Nick: No. We only do a cloud product. So, just for context for the audience, Dagster is a data orchestration platform. And you can think about it like, you write data pipelines in this Python framework for building data pipelines and orchestrating, meaning, ordering computations and modeling the assets that get produced by those computations.

You can install it open source, and people have deployed that to production – a ton of people, I should say we have thousands and thousands of users – but the cloud product allows us to do a ton of the hosting on your behalf.

Most of our enterprise customers have this hybrid product, where we host the control plane, which you think about it like everything is complicated – the metadata database and long-running processes that monitor things and whatnot. Then, they run their actual compute, it’s their data pipelines and their infrastructure.

So, yeah, there’s a cloud product you sign up for, we can host a bunch or all of the compute. And then, also, we add enterprise features on top of it – SSO, alerting, gobs and gobs of features that generally deal with complexity in the Enterprise that companies typically pay for.

So, that’s our primary business model: you sign up for Dagster cloud, you swipe your credit card or talk to our sales people, and you can have the best experience of a data orchestration platform in the world in our opinion.

Why sell small customers?

Mike: I noticed that Dagster sells to small teams – like you said, you can sign up for like 100 bucks – and also to large enterprise. I’m wondering does the small teams’ business actually add up to real revenue, or is it just a pipeline for enterprise customer?

Nick: I think in terms of what investors care about, and what the long-term trajectory of the business is, we certainly conceptualize it as mostly a driver of pipeline – yes – but a broader adoption as well. So, there’s tons of users that use our hosted product that wouldn’t use our open-source product. And simply because they don’t want to host their own computing infrastructure, which is totally reasonable.
So, I guess, if you kind of boil everything on the business, yes, there is – it is a source of enterprise leads, for sure, but it’s also a source of more adoption, which means more people talking about the product. More people having being passionate about the product.

Because an underlying flywheel adoption is also essential for the long-term commercial success of the company.

I think like that’s the most interesting component of it. It used to be, say 10 years ago, that you’d have an open-source product and you’d be like really pulling teeth to use the commercial or the hosted product.

I think the pendulum is really shifted now, where tons of people wouldn’t consider adopting an open-source technology if it didn’t have hosting options. Just because of the way that the entire world has shifted towards more hosted services, which is I think a win-win for everyone involved.

Pricing

Mike: One of the underappreciated challenges of a tech start-up is how to price your offering. I saw a note on the pricing page about an old plan and a new plan. The new plan’s a little complex – not being an expert, I couldn’t really quite follow it. Can you talk a little bit about the pricing journey and where and why you ended up where you are?

Nick: Totally. I like to say, if building an infrastructure company were a video game, pricing is the final boss. And that actually even undersells it. Because iterating on your pricing model is a continuous process, where you have to make sure that it’s working for everyone involved, that we can run a healthy business and that the customers feel like they’re getting a fair deal in terms of — because in the end, they need to get more value than they paid for.

You are correct to point out that the initial pricing was simpler than the current model. Initially, we started out where we wanted to have like no seats limit and just charge on consumption. I felt that a very fair way of doing consumption was to just charge on the number of minutes your pipelines run.

So, the issue with that – and I think this is a good takeaway for your audience – is that customers have to morally accept the pricing plan. Like, it has to make sense to the underlying way that they think. And the problem in a data pipeline solution, if you’re charging by, say by runtime, is that frequently what you’re doing in orchestration is that you are like calling out to Snowflake or Databricks or some other heavyweight computational system that does all the heavy lifting of the compute.
So, from the standpoint of the customer they’re paying us just to kind of wait for an API call to complete. That shifts the mind of the customer to think of us as just a compute hosting service.
And if you’re just doing that, the value proposition of our product doesn’t make sense.

So, the pricing impacts the way that the customer perceives the value of the product, which is obvious when you say it out loud, but isn’t obvious when you’re kind of in it.

We’ve really stepped back and looked at this – the real value in an orchestration system is in the kind of the control signals and the metadata. Like, concretely, you open up a orchestrator, or our orchestrator, and you see all these fancy Gantt charts of what’s going on, you have a ton of visibility, and then the words that our users often use is, “Ugh! Dagster is like the single pane of glass that consolidates my entire data platform, I have visibility into all this stuff.”

So, that’s where they perceive the value. They do not perceive the value like it’s a hosted compute service. That had the benefit of being simple, but didn’t actually align with the product value that the users perceived.

We switched to charging based on metadata and control plane events that drive our UI. I think the other thing is that for founders in the audience is that you have to have a pricing model that works for sales. And early on, you don’t have enough data to know how much consumption there’s going to be for a customer, for like say the next 12 months. And with the way sellers work, they have to hit their ARR number ― that adds up to their quota, that determines whether they can feed their children or not. So, it’s very important to the sales team.

We had to also add sort of a per seat component that effectively acts as a platform fee for our enterprise customers that allows us to kind of project and forecast ARR that would be appropriate to the value it’s going to deliver to the customer.

You also have to think about the internal incentives and how it’s going to work for sales people, who are reliant on selling your product in order to send their kids to college.

Why Audience Selection is Important?


Mike: I am going to pivot a little bit back to tech for a second, but really more to talk about the open-source community. What’s interesting about Dagster is that it reminds me a little bit about the battle between Perl and Python. They were open-source tools in your area that existed before, but they were a little bit hacky or more challenging.

Can you talk about what are some of the challenges of building an open-source community in an already competitive market, where you needed a lot of features just to get the baseline of functionality? And then, how did you focus on either getting new, or getting some of the developers to switch into your platform?

Nick: You need to make sure that you have an audience that cares about what you care about, and it is very differentiated on that dimension, to the point, where they are willing to take a risk to bet on you, to work around missing features or missing integrations that might exist in a more mature solution. So, identifying that small subset I think is extremely critical.

There’s now, I think, a kind of standard reading for Silicon Valley founders, which is Peter Thiel’s book Zero to One. And he talks about how you start with a small market and then dominate it, and then move on to progressively larger markets. And I think that really, really resonates with me, especially in developer tools.

One kind of approach – and this is kind of the nature of tools that I like to work on too – is that what you can do is pick the audience that you think has the most leverage in the organization. And for us, it’s like the data platform engineer. Like, there’s engineers whose entire job in life is to serve stakeholders who build data pipelines on top of a data platform that they build.

And a huge part of that is setting up a great developer workflow with CICD and testing, so you can actually maybe know if you’re going to break something before you push to production, which is very frequently not the case in data pipeline.

I think our early audience was really people who really got it that testing, and fast feedback loops, and developer life cycles, is like the baseline foundation of productivity. And productivity is just huge in working in the software. Because productivity is not just about doing tasks more efficiently, it’s about making an entirely new things possible.

So, yeah, I guess I kind of went for a field there, but to circle back to the beginning of the question, I think it’s audience selection and being deliberate about that, it’s really what’s important.

Governance

Mike: Recently HashiCorp has changed their license, and I see that Dagster’s published in its own GitHub repo, so you’re under the Dagster repo. Dagster is your trademark. How can you assure the community that if the board decides to sell the company to Oracle, for example, that they won’t change the license immediately? And have you considered moving the Dagster open-source project to community governance and making it safer to use for the future?

Nick: As someone who’s gone through a foundation process for another technology, we moved GraphQL to its own open-source foundation with community governance. I have a pretty deep understanding of the trade-offs here. I think it’s a question of maturity and life cycle. The risk that you said exists. There could be a boardroom coup, and I’m out and Pete’s out, and then, we’re sold to Oracle or something.

By the way, the probability of that is approximately zero, but let’s theoretically do it. And then, Oracle could change the license―that is possible. I don’t think that’s a realistic risk in any sort of near-term.
So, if we had community governance, it would eliminate that risk. However, community has a ton of it overhead. And where does the beginning of our journey for innovating, and we want to be able to move quickly and respond to feedback quickly, build features, have complete control in that way.

And that’s definitely the right trade-off for us right now. Compare and contrast that to the GraphQL story, with GraphQL, we open source the spec, a document that was meant to be very stable from day one, and evolved pretty slowly over time. So, in terms of the technical artifact there, it actually matched like having a foundation process and governance over it made a ton of sense. But for Dagster and the immediate future, we’re having more centralized control, and increased pace of execution definitely makes the most sense to us.

2023

Mike: I’m going to move to a temporal question about 2023. A lot of tech companies struggled in 2023. The Times reported that 3,200 venture-backed tech companies went out of business in 2023. Of course, I don’t know how many normally go out of business, but still it seems like a lot. I was wondering, was 2023 a good or a bad year for Dagster? Did you buck the trend and grow 100%, or did you also feel pressures on budgets from enterprise customers?

Nick: We had a great year. So, not only did we grow 100%, we grew 400%, and our NDR was north of 150%, which means, our existing customers were also increasing their contract sizes. I feel great about the business, especially being able to grow this quickly in this environment. I am also grateful that we didn’t raise round of financing in a wildly inflated valuation, with too much capital in the FED bubble in 2021.

Because, at the time, certainly, it was frustrating – a bunch of my peers were  — you know, all of a sudden, the CEO has a billion-dollar company, even though they in reality weren’t that far along in the journey.

Now, I think a lot of those people kind of are in a pretty tough spot, and they’ve had to do layoffs, and it’s painful. We kind of stuck to our fundamentals there, so, I feel very good about it.

I still think the pain is going to be very real for the industry through 2024, maybe even into ’25. Because, yes, there’s an advantage to raising a bunch of capital too, in that you have a long runway. A bunch of these companies, they have so much cash on the balance sheet, and the interest rates have gone up that their interest is actually a meaningful source of income too.

There are more waves of company death coming in ‘24 and ’25, I guess I’ll put it that way.

But we’re in a great trajectory, and I think we’ve raised an appropriate capital to the progress in the business. And we were able to raise a B in 2023, which was a very challenging process, but it felt great to be able to do that. Not many of the companies were able to do that.

Open Source R&D v. Commercial R&D


Mike: Here’s a question, and it’s a little bit about engineering priorities: you have an open-source project of which your team contributes a lot of code to, and you also have a commercial cloud product. Can you just talk sort of at a high level, from an R&D perspective, like how much of your budget gets invested into your product versus how much gets invested into the open source? And how do you balance those priorities?

Nick: It’s actually hard to tease apart. Because, if you’re an engineer who is working on a feature that will have manifestation in cloud, often you’re kind of spanning the entire stack and like working on the open source, but then also working with some proprietary features. So, it’s difficult to cleave it that way.

The other thing is that we reorganized the engineering, the R&D organization around company objectives fairly frequently. I actually can’t give you a precise number at any point, or historically/cumulatively, about how much we’ve devoted to both open source and the cloud product specifically.

I guess what I’ll say is that we still invest a ton of our eng resources. I would say like 40% of engineers effectively work exclusively on the open source, and then there’s another tranche that kind of spans the entire stack, and then there’s another tranche, like people who work on our cloud platform, and all the DevOps and SRS work around keeping that alive and operational.

I don’t know, I guess you can call 50/50, but it’s actually really difficult to put it even semi-processed number on it.

Dog Years


Mike: Well, it sounds like it’s really been an amazing journey. And I’d like to remind you that it really hasn’t been that long either. Only 2018 doesn’t seem that long ago to me.

Nick: Well, it seems like a long time to me, man! That’s the old joke. It’s like dog years in a start-up, one year feels like seven. I have to pinch myself. I only moved away from the CEO seat like 15 months ago or something. And it feels like a lifetime.

Founder Advice


Mike: We covered a lot of topics, but I guess, my last question is, is there any advice you have for entrepreneurs, who are launching a business around an open-source software, product or project?

Nick: I think one of the things that founders need to think about — I mean, this could be an entire hour podcast about all the advice that I would say, but couple things to think about: one is, know when to go slow and know when to go fast, especially when you’re talking about so-called “one-way doors” in Jeff Bezos speak, where you’re making decisions that are either extremely costly or impossible to undo. Company branding is challenging to change in terms of the specifics of open source and dev tools, API decisions, especially in open source, last forever. You need to be deliberate on that.

And a commercial product, you can actually iterate extremely quickly. So, I think it actually is important to kind of have two cultural muscles. One is much more upfront design-oriented and collaborative with community, and deliberate and thoughtful on API design, but you still want to have that super-fast feedback and development when you’re developing the commercial components to your product that are hosted.

The other thing I would optimize for – if I was traveling back in time and talked to myself – is optimize for getting yourself into a situation where you can have a super-fast feedback loop, with early users and customers, where you still have the opportunity to change things, and do so quickly.

If you’re in a super-fast feedback loop with a single customer, you can make API changes much more easily. And the ideal situation still is, if you are working on a technology internally at a company, where you have access to all the code that uses it, that is just super valuable.

You’re also basically getting a seed round for free, because, often you’ll have people around you, and you’ll be working on it.

So, I don’t think I truly internalize what an advantage that was, to have it done the core R&D internal at a company. Yeah, I think like there’s a little more resistance now to open source the internal tech with kind of — it’s a less idealistic environment these days. But those are kind of the top-level things that come to mind.

Closing Notes

Mike: Well, great. Thank you so much for taking time out of your day, Nick, and best of luck with Dagster Lab.

Nick: Thanks. It was really a joy to be on this podcast. Thanks, Mike.

Mike: Special thanks to the Dagster PR team for reaching out and helping with logistics. Cool graphics from Kamal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere. Next episode recorded at the State of Open Conference. Peter Farkas, Co-founder and CEO of FerretDB. Hopefully, I’ll have that out in the next week or so. So, until then, thanks for listening.

Episode 64: API Service Mesh with Idit Levine, CEO and Founder of Solo.io

Intro


Mike: Hello and welcome to Open Source Underdogs! I’m your host Mike Schwartz, and this is episode 64 with Idit Levine, Founder and CEO of Solo.io, an API Gateway and Service Mesh company with a product called Gloo – not to be confused with Gluu – the company that I lead, who sponsors this podcast.
I’ve been trying to get Idit on the podcast for many years ever since I spoke with her at an Open Source Conference in 2019, and finally, her PR agent reached out to me a few months back, and, of course, I agreed immediately.

Solo is not your typical startup journey, it’s sort of a miracle it got off the ground, but once it did, they didn’t waste any time – they’re already breaking 10 million in sales.

To avoid spoiling the story, I should just stop here, so let’s cut to the interview.
Idit, thank you so much for joining us today.

Idit: Thank you so much for having me, Mike.

Did Solo Join an Incubator?


Mike: My first question, and this is sort of a different one, but it’s something I’ve been thinking about, is when you first started Solo.io – which was not that long ago, I think five or six years ago – did you join an incubator and why or why not?

Idit: I did not. I wasn’t even aware that they exist, honestly. When I started the company, what I knew is that I had some “technical” friends that I knew that I can start it, and basically started doing this – the software was more about the technology. So, I needed to learn that while I was raising money, and so on.
Honestly, Mike, I think the first VC that I met, they asked me about a pitch, and I asked, “What is a pitch, what am I supposed to do?” I really didn’t know much, I needed to learn.
I wasn’t aware of a long incubation, definitely not in those days, because it’s not very popular.
I just basically started the company around software and just tried to get some money in order to kind of like bootstrap the company. But that’s basically the things I would do. Honestly, mainly because I wasn’t aware of it.

Mike: Do you think if you could do it again, you’d use an incubator?

Idit: No. Now, I feel that they learn so much from those processes. I think it’s very good if a first founder maybe is not aware of a lot of stuff, that’s really helpful to be kind of like protected by team that has done it before and knows how to help you and guide you.

Today, I think I learned enough of the process, and I’m doing it for a while right now. I made a mistake, I learn from them, so now, I’m feeling that I’m more free to actually do it myself again, if I need to.

State of Company at Seed Funding

Mike: At the time you raise your seed funding, was the open-source project started, did you have any technology, did you have any initial customers or team? Like, what was the state of the business when you closed, let’s say, that seed round?


Idit:  No, there was nothing, honestly. Before that, I worked in the EMC. Part of the EMC, my job was to basically do cool stuff on open source. I was in business, I was in the city office, and my job was to basically, if I had a new technology and we had to figure out how we can play that. Basically, we did a lot of open source and invent development. We immediately knew that we were playing back then, in Kubernetes, Mesosphere and Mesos, and all that great kind of technology. Docker was just a new thing back then, so, again, playing in that ecosystem was immediately a thing that we’ve done.

When I started the company, there were two things that I started pitching in the beginning. The first thing that I was pitching was unikernel. It took me a few months to understand that that’s something that I would not be able to ever raise money on. Probably for good reasons.

By the time we were at home, I was pretty bored, so I built another open-source project called Squash. And that was an open-source project that related to debug microservices in Kubernetes.

And that was relatively successful project, but mainly, as I said, I think that there is a good money on it because the work that I was doing before in the open-source, I literally built a reputation of someone who is capable of doing a cool project.

How Many VC’s Pitched?


Mike: How many VC’s did you pitch in your initial seed funding round?

Idit: Oh, man, a lot. I mean, as I’ve said, again, you remember, I was on the east coast, but once I decided to do it seriously, I left the EMC, and then, I basically went to the west coast, where there is VC that is more in that space and that, yeah, I got a lot of those, a lot. I think like every founder as well.

Products?


Mike: I don’t want to go too deep into the tech, but when I look at the Solo website, I see there are a few products. I am wondering if there’s like an 80/20 rule here, where one of the products accounts for 80% of the revenues?

Idit: We don’t have 20/80, actually, that’s interesting. I think it’s probably 50/50. And the reason is because of the packages, a lot of time we’re selling them together. If you look at all the projects, the main two markets that we’re going after is, the Gateway and the Mesh market. We started with a Gateway mainly because the Mesh wasn’t — you know, we couldn’t sell it.

So, we started from the Gateway, and we knew that this is kind of like an entry point and kind of like a stepping stone to a Service Mesh, so that felt very in the area. And I believe that in the future the Mesh will grow more.

First Customer

Mike:  So, one of the challenges of a start-up is always the first customer, especially if you’re selling in the Enterprise space. How did you convince this customer to be first? What did they actually buy? And whatever they bought, does that resemble your current offering today?

Idit: Yes, actually, as I said, we started selling the Gateway, and that was a flagship product of the company. When we started, basically what we did is, we had three design patterns in a way. I didn’t do it the regular way, we did it from open source. We didn’t go and talk to customers and say, “What do you want us to build?” And then, we built it. We were more like, we’re in the open-source and kind of like say, “Okay, that seems like the right thing to do.”

Kubernetes came, you needed a new API Gateway, you wanted probably an Envoy – that’s what we believed people wanted – and then, we went to pitch.  And a lot of those customers came to us from the open-source community.

So, we learned a lot from that process. What we did, and we did it differently, because we are coming from open source, we basically managed all our relationships with our customers through Slack. Then, understood what we need to do in order to make that very, very successful in their infrastructure. And we basically got all those requirements and built them into the product. It’s very different to build an open-source project versus an Enterprise environment.

Value Prop


Mike: So, what would you say is the most important thing that motivates your customers to buy your product?

Idit: I think that today Solo is kind of like three things that we are very good at. Number one is, we really, really understand the marketing really, really well, and the technology in it, so we know what’s coming up. We know what is 20 and what is not, we’re looking at adoption – we really understand that very well.

So, we always compromise with the customer that we will bring them to the edge of the technology. If there is a new technology that is relevant, we’ll probably put it in our product. I think that’s one thing that customers like, so the perception of Solo is that it is an innovative company, which it is – it’s what we are.

The second one I think is customers in sales, which was always one of the things that is the most important to us. This work with Slack, when I started it, everybody told me that’s not going to scale. And surprisingly today, when we have hundreds of customers, it is still scaling, and the technology itself, if you look at it right now, there was a lot of shifts in the market in terms of the infrastructure that you’re running, most likely running in something like Kubernetes.

So, it makes sense that you would have a Cloud native Gateway, and when you start scaling and scaling and scaling, it makes sense that you will take care of something like MPLS and Security and Zero-Trust and Observability, and all those microservices – it’s just that this is the needed technology when you are going to scale. And that’s where the market of microservices like Kubernetes is right now.

Is Solo a Distribution of existing Open-Source Components?


Mike: Solo is an interesting company in that, in a way, you write software, you write a lot of software. But you also have a curated distribution of open-source components that you give your customers a control plane to manage and take advantage of. So, it’s not just the software that you’re writing, but without Envoy and without Kubernetes and without Cilium, you really maybe couldn’t even build a product. So, do you think that maybe this is a new model, where you add a little software on top of this huge curated distribution of other very complicated components?


Idit: Instead of creating the open-source project – we do have one, for instance, Gloo Edge is a technology that is an API Gateway based on our technology, and it is based on Envoy. I think that what we were good at was identifying, pretty much at the beginning, which of those technology would be better on Envoy, when honestly Envoy was relatively a very small community no one really knew about it, and NGINX was the chosen proxy.
We chose Istio, even though we could have competed like everybody else and tried to build a better service mesh, but I knew that that will be the choosing mesh, even though when we looked at it, it was pretty messy, and we knew that it would take you a while to get there.

I was very, very aggressive to my team saying we are not going to be competitive, we are going to use that.

And the reason is because the software that wins is not always the best software. It is the software that most people are leaning to because they will make it eventually the best software. And I think that that was something that Solo has recognized very well. All that technology, all those products that we are doing is basically we are building – and I will not say a little – we are building quite a lot of logic, ease of use and enhanced technologies on top of those — let’s call it basic component that you need.

There is a lot of complexity actually in the control plane, way more than in the data plane, for instance. But, yeah, as I said to you, this is my model, hopefully sellers will succeed with it, but yeah, I believe that open source is building an amazing technology, and that we should leverage the best.

We are also contributing a lot of those technologies. I mean, if you look at the Istio right now, the new thing that we did with Ambient that we and Google contributed to it, it’s mainly we are the main contributor to it. And Istio, we are contributing a lot to it, we have a full team that is responsible to contribute to it. If you look at this, probably I think the most engineers that are working today on Istio are coming from Solo.

How to Decide What Features Are Open Source?


Mike: I was looking at the open-core model, but I’m actually more curious about, there’s always this friction between what do we put in the community version and what do we open-source. What’s the decision process behind deciding whether a plug-in will be commercial or non-commercial?

Idit: In the beginning when we started, we had nothing, we put everything in the open source, but then at one point, we understood that that’s a problem. Because eventually, somehow, you’re not going to exist as a company if you are not going to make a little bit money at least. So, we needed to figure out that what we’re putting on to double it will make sense, we are not hard to open source because it’s very important to us that open source will be successful.

It’s why we continue contributing constantly to the open source, but we also need to make sure that we will have something that differentiates it on top of it. And the decision in the beginning when we thought about it, the Enterprise feature that people actually really, really wanted to have a provider helping them was security or stuff that will let that do. You know, Enterprise feature like HA.

So, that’s the stuff that we put in Enterprise. The question is, you are usually around technology, would it make sense to be in the core open-source project because that is where it belongs. It’s kind of like a core feature, or it’s actually an extension to that open-source project.
And therefore, it’s going to be that Enterprise edition. To us, it was very important that the core should be open. That’s the way we’re doing it.

Pricing

Mike: I always worn entrepreneurs that pricing is one of the most challenging aspects of a tech start-up in particular. Can you share maybe some of the lessons you learned about how to price in the first few years, did you get pricing right initially, did you have to do a major pivot – what was your experience there, and do you have any lessons learned in pricing?

Idit: As I said to myself, okay, maybe the real unit of contribute for instance in the Gateway is supposed to be the API call, but honestly, that will take a lot of time for me, and it’s also going to be a pain for my customers, so how can I still value how much they use it, without actually interfering too much with the customer and with my engineering team.

And what I came with in the beginning is that the data plane is usually a good assumption, because if you have a lot of call, you’d probably want to scale that data plane. And in the data plane, it’s easy to call, the customer tells me I have five clusters, this is a data plane I am using – it is very easy to measure it and if people use it more, that’s fine.


So, that was the beginning. When we added the service mesh, there was a way more data plane and there was also a way more potentially change. Because you have cycles, and the cycle is basically going directly with the application, the microservices. The microservices going up and down, so very hard to basically figure it out. We needed to change that model and we went to the cluster model.

We said, just let’s keep it simple, we don’t want it – again, it’s all about keeping it simple. That’s what was important to me. I don’t want my customer to need to have a PhD in order to understand the way we were pricing.

That’s what I did. And again, it’s probably cost me some money. I probably left some money on the table and that was fine. But again, it was all about and it is still all about Solo as the partnership. It’s all about the relationship that we have with our customers, it is a real partnership, we are seriously the extension of their team.

But, you know, stuff changing all the time, so you always need to adjust. And honestly, you are learning that from your customer. So, for instance, what we saw right now is that some of the customers that are basically using us, it is more like advanced development center kind of thing.


Innovation centers like city offices or the innovation center on the ITN, and when they are starting, usually what they want, their job is to basically build something to offer to the businessmen. So, the question is, the money is not going to come from them, you cannot expect them to have tons of budget to pay you to run it.

So, what they really want is more of the consumption model. What they want is to create something and get the platform available everywhere, without paying millions of dollars, but then, they will basically enable teams to come after. And that’s different. The model should be different, it can be how much clusters you’re running. Because it could be that you’re running an empty cluster in the beginning. So, we needed to adjust based on the customers. So, it’s always moving kind of like we are learning from the customer how we can make it better.

But again, to me, the way I’m looking at this and that’s always my motto – whether it is truthful building, writing software or selling product – I want to take the challenges on my team. For instance, I prefer right now to build a sophisticated metering that will make the best customer end-user experience for my customer, even if it’s harder.

How to Maintain High Growth

Mike: You know, I was reading an article, and it said that you were projecting five to six times growth for the next year, what is a key to obtaining this high rate of growth? How is that possible?

Idit: First of all, the market – and that’s very, very important. Like for instance, when we started, we had the Gateway that was very popular and everybody needed it, and then the Mesh came, but it took us a while until Mesh would be everywhere. Right now, there is a lot of stuff that is going really, really well for us, and that’s what is allowing us to go.


What number one is, for instance, that is still going to the graduation. So, we actually choose the right service mesh, and not only this, it is going right now to graduation which has shown maturity.
So, that by itself means that there is more demand from the market. You just need to have the right market product to sell, and when a customer wants it, it would be really lazy to grow. But I’m not going to say that there are no challenges, in economy, it could be that we have an amazing product, we have tons of money – that’s not really helpful if our customer doesn’t have money. They’re not going to buy it. Again, that point – you need to make sure that the product is a necessary, that people will need to spend money for it.

Just, again, listen to the market, make sure that you have the right market fit, which I think is the most important, thinking about the packaging, make it very, very easy for people to consume your product.

Metrics and Data?

Mike: You’ve mentioned that you’re data-oriented, and I’m wondering, what are some of the most important metrics that you track?

Idit: This is a good question. I mean, if you ask my CFO, who is a very, very data-oriented person, a lot of the metrics that is running is metrics is numbers – how many VCs we are doing, how much of it is in production and that kind of stuff. Data that I’m looking at is different than the data that my CFO, the metrics that they’re looking at. I think in every business, it’s all about people, it’s all about the people in the business, it is all about the people in the market. Why has AWS decided to do this, why has Google decided to do this, what’s going on inside this organization – all this information is not metrics, but it’s data that you need to collect in order to make the right decision.

How do I predict it five or six years ago that there is going to be a lot of clusters and that people will need a service mesh for each and Istio will be that service mesh. That was pretty crazy to do five years ago.


But I had enough data that would lead me to believe, a lot of data that would lead me to believe that this is the direction that we need to go. So, we do have the metrics of how many customer success, otherwise you cannot scale – you need to know when something is wrong and, you know, big enough organization right now that “I’m not everywhere and I don’t know everything anymore.”

What Gives You Joy as CEO?


Mike: What gives you the most joy as a CEO?

Idit: It is always your job to basically kind of like try to cover the gap that you have in the company. As in the beginning, we had engineers, but we didn’t have anybody to do evangelism, and kind of like after that, we grow, and then we got that evangelism, so I’m not doing evangelism anymore. You are always doing more stuff, and to me, the way I’m looking at this, honestly, when I’m waking up in the morning is, what is the next fire that I need to put off, like where do I have a problem with, what is not working well the way it is working right. It is seriously like that’s how you should think about it – where is the next fire will come from and how am I covering it.

And to me, I’m a person that is easily being bored, so, I like learning, I like seeing what the problem is, I’m dangerous in every position in the company, potentially. I’m dangerous enough now after six years that I learned all of those.

So, I think that, the fact that it’s never boring, but I wish it was a little bit more boring. I mean, I heard a joke from someone that said, “A founder that started a company in the last five years, what did they need to overcome?” We needed to overcome Covid, we needed to overcome the SVB with the Silicon Valley Bank fall, we needed to overcome the fact that all our competitors suddenly could have raised 100 million dollars, you know, like crazy variations with seed money.

And so, there was a lot to overcome since then and it is never boring. And I think that as someone that likes challenges, that drive “I want to be the best, I want to win.”, so, that’s what I’m enjoying.

And I’ve got an advice from Diane Greene, who was the founder of VMware. And she was one of the people that started Google Cloud, so, one of the feedbacks that she gave me when I started. She basically said to me, “You can decide which type of CEO you should be.” Keep the stuff that you really like to do or you really feel that you’re a huge differentiator. And my guess is, it is that technology is the strategic, that is my strength.

And bring strong people next to you to cover the stuff that you can give away. So, my advice is to go to market. That to me is kind of like the way I’m looking at this, but honestly as a CEO, you really do a lot of the stuff that you don’t want. I mean, your job is to fix the problem or to cover stuff and to enable the other teams. If I need to help my engineers, I will do that if I need. You know what I mean? I will do everything I need to enable the team base. That is I think very important.

What Advice Would You Give Yourself If You Could Go Back in Time?

Mike: If you could go back five years or six years and give Idit some advice, what would that advice be? It doesn’t have to be at the very founding, it could be in the early stages too.

Idit: Wow. I learned so much. It’s very challenging to run a big team and make everybody aligned. As the company’s growing more and more and more – that’s become more than another. I think that the advice that I would tell my younger Idit is basically, just follow your instincts, listen to people, but eventually, make your own decision. I think the thing that I was doing wrong in the company was, a lot of times, I’d hire a leader for market and he’d go to market. And I knew that this is not my strength.

So, even though I didn’t believe always that what they thought were doing is wrong, I let them do it because I said, “Look, they are the expert. I’m not an expert in marketing, so let them do this.” I paid a big price for it because I felt that actually a lot of times, they were wrong and it’s within the company.
So, I think that what I learned today and why I think that I would be a better leader than I was back then is because I’m going to die or succeed on my mistake, honestly. Because there’s nothing faster than us to come and take responsibility for someone else’s mistake.

Again, it doesn’t mean that you’re not going to listen, but after all the data at the beginning, if you believe, like trust your instincts, don’t assume that someone else knows your business better than you. I think that this is something that I made a mistake a lot of time, actually multiply times. Before I said, “Okay, that’s it.”

Close

Mike: Idit, thank you so much for sharing all that experience and know-how and best of luck with Solo. Although it doesn’t look like you need it, you look like you’re doing amazing, so, congrats.

Idit: You always need more luck, but thanks.

Mike: Special thanks to Idit and the Solo team for reaching out. Cool graphics from Kamal Bhattacharjee. Music from Broke for Free, Chris Zabriskie and Lee Rosevere.

Next episode’s expected Jan of 2024, an interview with Nick Schrock of Dagster. I’m slowing down a little bit, but I’m still trying to do four episodes a year.
Don’t forget the State of Open Conference is returning to London, Feb 6th and 7th. So, until next time, this is Mike Schwartz, and thanks for listening to Open Source Underdogs.

Episode 63: EBPF Networking Isovalent with Liz Rice – Chief Open Source Officer

Intro

Mike: Hello and welcome to Open Source Underdogs! I’m your host, Mike Schwartz, and this is episode 63, with Liz Rice, Chief Open Source Officer at Isovalent, the software startup behind Cilium, an eBPF-based Networking, Security and Observability project. 

This episode was recorded in early February at the inaugural State of Open Source Conference or SoCon, which was held in London at the QEII Center in Parliament Square. The force of nature behind SoCon was Amanda Brock, CEO of Open UK and editor of the essential book Open Source Law, Policy and Practice, 2nd edition. Check it out on Amazon if you’re an open-source founder. Don’t miss SoCon next year in 2024, especially if you’re already in Europe for FOSDEM.


If you think eBPF or enhanced Berkeley Packet Filter sounds like a geeky low-level technology that you don’t need to know about – well, you’d probably be wrong. It enables developers to safely write code that runs in the Linux kernel. And safely is the key word here, because if you crash the Linux kernel, everything on the whole server goes down, all the containers, and everything else running on that server.


However, by exposing the power of the Linux kernel, developers can write code that runs faster and consumes less energy, and faster and cheaper has always been an attractive feature. Cilium combines three products into one. It’s like an old-fashioned firewall, an API Gateway and Wireshark, and it’s Kubernetes pod aware. It’s used by a number of successful products like Teleport for access management or Solo.io Service Mesh.
Simply said, eBPF is going to fundamentally change our infrastructure.


I met Liz at the SoCon conference, and after learning a little about Cilium, I was really impressed, and I asked her if she would come on the podcast, and luckily, she said yes. So, here we are with the interview.

Mike: Liz, thank you so much for joining me today.

Liz: Thanks for inviting me.

Tech Overview


Mike: As I understand it, Isovalent leverage’s a kernel technology to build a product called Cilium Enterprise. The upstream Cilium project on GitHub has over 22,000 commits and 14,000 stars – these are really impressive numbers for a project that started in 2016. How did this happen and how does this relate to the origin story of Isovalent?


Liz: Yeah. So, Cilium is built on a platform called eBPF, which is the kernel technology that you referred to. And eBPF allows us to run programs that are triggered by events that happen in the kernel, and those events could be Network packets, they could be a system call being made by user application – pretty much any sort of event in the kernel can be used to trigger an eBPF program.

Cilium was the first networking project to take advantage of eBPF. And it was always designed with the idea of container networking in mind. And the folks who started it are the founders of Isovalent, as well as being the originators of the Cilium project. So, Thomas Graf, Daniel Borkmann, who’s a kernel maintainer looking after eBPF, within the kernel.

And eBPF and Cilium, particularly eBPF in Networking and Cilium, kind of grew hand in hand since 2016 thereabouts, as we – the many, many contributors to the Cilium project – as it grew and as it gained functionality, sometimes that’s required additional capabilities in eBPF.

So, it’s been really almost like a long game. I think when Daniel and Thomas and Dan, the CEO, when they were first thinking about using eBPF, it was such a cutting-edge kernel technology – nobody was using it in production.

You know, when we add something to the kernel today, people won’t be using it in production for probably three, four, five years to come, so really, anticipating what the future was going to be.

I first saw Thomas presenting Cilium and the underlying eBPF technology back in 2017, and at the time I thought, “Well, this is revolutionary, this can change so many things.” Because not only can we see Network packets being manipulated by eBPF programs, we’ve also got this incredibly performant way of observing those Network packets and reporting on them that we can use for observability tooling. And like you mentioned network policy – we can implement network policy in eBPF.
Just making policy decisions about whether an individual Network packet is permitted or denied by policy, based on Kubernetes identities – this is the other real strength of Cilium.


It knows the Kubernetes identities, the labels of every pod. And so, you’re no longer just looking at network flows in terms of IP addresses and the port numbers you’re actually looking at them in terms of “this is a flow between service X and service Y.” It is so much more meaningful for a Kubernetes’ user.

Why the name Cilium

Mike: Just out of curiosity, do you know what Cilium means?

Liz: I think they’re little hairs in the inner ear – I’m not entirely sure why that was used as the name for the project.

Origin


Mike: I understand the eBPF technology is mind-blowing – Cilium is quite a project as I said. I mean, you’re not one of the co-founders, but do you know anything about how did it become actually a business?


Liz: I think pretty early on, as Cilium, the project, was getting established, and this sort of understanding that eBPF was going to be a really great foundation for efficient networking. That idea of building a company around this technology was probably in Thomas’s mind right from the get-go – I don’t know that for sure, but I imagine it was. And he and Dan Wendlandt, who I mentioned earlier – this is Thomas Graf and Dan Wendlandt – Dan had the background in software-defined networking, he’d worked at Nicira.


And I think they really saw the future of container networking being built on eBPF, so it was kind of natural to build a company. But, for the first few years, really the focus was on building the Cilium open-source projects, getting that really well-established and really well-known in the Kubernetes community.

It’s now been adopted by the CNCF, so we’ve actually contributed the project to CNCF, we’ve recently applied for graduation status there. It’s probably the most widely adopted in production networking plugin for Kubernetes now.

That kind of path from open-source projects, we really need to see this widely adopted, and then, a business that can provide, not just support, but also some Enterprise features that really large adopter is going to need. And just makes a lot of sense.

What does a Chief Open Source Officer do?


Mike: Your title is Chief Open Source Officer, and that’s a title I’ve never actually heard before. How is that role defined at Isovalent and why were you so excited to take on this mission?

Liz: It’s a particularly interesting title in a company where the vast majority of the engineering is open-source engineering, but I don’t run the engineering teams. My role is much more about how do we continue adoption of the open-source project, and how do we interface with the foundations, the community – I do a lot of work with the CNCF as well. How do we both act as good citizens towards that community and do the right thing in the open-source world. But also make sure that we’re taking advantage of everything we can.

You know, foundations like this offer us a lot of roots to speak to people who might become users and how we can do that in a way that is beneficial for people who want to learn about Cilium, or who want to learn about eBPF. So, that kind of educational role also falls within my team.

Open source v. Enterprise

Mike: This may sound like a silly question because Cilium was so powerful, but from a business perspective, what would you say are the main value propositions of the software?


Liz: So, from the open-source perspective, it’s a highly performant networking solution with built-in observability and security features. And we could dive into more details on what those are. From our perspective, it’s fantastic. If people are satisfied using the open-source version of the code – that’s great – we never want to make it such that — we don’t want to curtail the functionality, so that it always wants to be useful to open-source users.

That said, there are some features that particularly larger Enterprises are particularly interested in that you won’t need if you’re not a big Enterprise. So, for example, integrating with Legacy workloads. Some high availability features that you don’t really need unless you’re at a certain scale – those are the kind of features that we provide in the Enterprise distribution at Cilium.

Isovalent v. Sysdig?


Mike: Do you see yourselves competing with a company like Sysdig?

Liz: On the security front – yes. There is an element of competition there. I think we’re sort of speaking with slightly different customers there. Because, to my understanding, Sysdig is very much a security focused solution, whereas Cilium really applies more to a platform team who’s establishing, I would say Networking first, with this incredible set of security capabilities that you can then show to the security team, these amazing capabilities that they’ll get all that they already have by using Cilium.

I think we’re probably talking to different people within our respective customer organizations, but there is a certain amount of overlap around particularly the kind of runtime security, which we have a sub-project of Cilium called Cilium Tetragon. And there’s the ability to create profiles for the kind of things like accessing sensitive files or running certain executables, privilege escalation, suspicious network activity – these are the kind of things that we can detect at runtime using eBPF.

Why contribute project to the CNCF?

Mike: You mentioned that Cilium was contributed to the CNCF. What was the reason you brought the project to the CNCF? Also, what does that mean for the governance of the project?

Liz: It’s a big step to contribute a project. Because we hand over the intellectual property to the CNCF. That is something that Isovalent used to own and no longer owns. And the governance of the project really needs to be in the hands of the community. So, Isovalent remains the most prolific contributor, but – and this is again part of my role – encouraging more people and more organizations to get involved in not just code contributions and not just documentation contributions, but also the kind of broader evangelism of what Cilium is and the advantages of Cilium.

So, yeah, we’ve really embraced that community. And I think the phrase that we’ve used internally is “paved the world with Cilium”.

And the best way to pave the world with Cilium is to give it to as many people as possible, and the CNCF gives us a really great route to reaching all those people who are using Kubernetes. It gives those people confidence that it doesn’t matter what happens to Isovalent, the Cilium project is in the hands of a much, much bigger organization at this point.

And then, you know, that subset of people who are using Cilium, but then, find themselves needing Enterprise features. We won’t necessarily be the only Enterprise distribution, but there’s no doubt in my mind that we have the greatest expertise. So, hopefully, we will be the obvious choice for someone looking for Enterprise features or Enterprise support agreements around Cilium.

Trademark


Mike: This actually leads into my next question, which is that CNCF actually owns the trademark for Cilium, but your product, the Isovalent product is called Cilium Enterprise. And so, hypothetically, another company could make a product called Cilium Pro. I mean, I looked at the contributors and I went down eight contributors, they all work for Isovalent, I didn’t have time to go any further, but, obviously, your company has a lot of expertise, but still, the prospect that company spent a lot of money defending their trademarks, I almost never heard of anything like that – is it sort of terrifying, though?

Liz: I mean, at one level, yes, it is kind of terrifying. And Cilium is a brand name that is better recognized today than Isovalent is. And that’s a challenge that we have to embrace. And there are rules around what you can and can’t use – I think that there are probably still a few instances of documentation and use of the word Cilium, which we’re not really allowed to do any more, that we haven’t managed to tidy up everything.

There’s limitations on what you can and can’t use around a name based on what is now a Linux Foundation trademark. But everybody understands there’s a transition between us having a trademark and then giving it to the foundation. It obviously takes a little while to tidy up all that options around that, yeah. So, Isovalent Cilium Enterprise is the Isovalent distribution of what is a CNCF-owned community project.

Outside Contributors


Mike: I mentioned that there’s a lot of Isovalent engineers who are contributing code, but are there other engineers who are also contributing?

Liz: Absolutely! Google is quite a prolific contributor, Cilium is actually used in Google’s Dataplane V2, we have maintainers from Datadog, again a huge adopter who has been using it. Enormous scale – there’s some really good talks from Datadog talking about the scale of which they’ve deployed Cilium, we have contributors from Palantir.
Yeah, there’s several what we call committees, so maintainers of the project, who come from lots of different organizations. And then we have – I think it’s around 700 contributors in total. Isovalent today is just over a hundred people. The contributor base is much, much wider than just Isovalent. That said, we probably have the largest group of people working full-time at Cilium.

Market Segmentation?


Mike: On the commercial side, for infrastructure, the marketing is very horizontal, but have some natural segments worked out in terms of the customers who convert from open source to a commercial relationship with Isovalent? And are you figuring out that there’s any ways to segment the market here or the messaging?


Liz: I think that’s something we’re learning – I have just mentioned that we’re about a hundred people now, so we’re growing in our capabilities for how we target different customers and different verticals. We’ve had a lot of success in financial verticals media, quite a few transport, strangely enough. Yeah, so there’s a pretty wide breadth of Enterprises who have adopted this. I guess, the prerequisite for nearly all cases is that there are Cloud Native Kubernetes users, or that we do have some users who are using Cilium in a standalone load balancer scenario.

Have we figured out how to market to all of these different types of businesses? We’re absolutely still evolving and learning. But I think the fact that we’ve for many years had this very community-based focus, a very community-based approach, means that we can establish relationships and have trusted sharing expertise on a technical level that then encourages those engineering teams to recommend us internally.

And when it comes to making a choice about an Enterprise product or whether they need commercial support, those engineering teams already know who the experts are, and have potentially already had help from our team through the open-source community.

Team Location


Mike: Is there an Isovalent headquarters office where engineers go in, or is everyone like spread around the world?

Riz: We are fully distributed. We do have offices in Zurich, where Thomas is based, and in the Bay Area, where Dan is based. And I think that the timing, you know, really around the pandemic, just at the point as Isovalent was growing was sort of around the same time as the pandemic hit. So, inevitable that we were going to be remote based.

And as people have joined, they joined from countries all around the world. We have people from as far as long as Japan, or Alaska, Australia, throughout Europe and across the U.S. So, our team is really now fully distributed, and the culture has to embrace that. So, we’re very much focused on being remote first.

We do get the team together, and we try to get the whole company together, at least once a year. And we have a lot of encouragement around getting teams together in what we call hive time. Because we’re all about kind of bee-related metaphors.

Monetization: What features are enterprise?

Mike: I’m curious about monetization. It sounds like it’s open core, and what are the extra bits that you’re offering, I guess, in the Enterprise? And how do you decide what to make open source and what to add as an extra feature in the Enterprise distribution?

Riz: I see that the term open-core can sometimes come with a bit of a negative connotation. Sometimes people think of it as an open-source software that’s got some kind of, you know, been cut off at the knees, and that’s absolutely not what we believe in.

We absolutely believe in the open-source product being genuinely usable, and there are some pretty large organizations who continue to use just the open-source version. The kind of things that people will come to us for will be — there are some high availability features, there are things like BGP support for connecting into your legacy data center workloads, some Telco specific protocols that we’ve worked on – we very much don’t want people to feel that there’s something that’s core to their basic use case that they can’t do with Cilium.

Unless they are big enough that they’re the kind of organization that wants to pay anyway. You get to a certain size of organization, where you really don’t want to be just relying on open source with no sense of who’s going to support it when anything goes wrong. And they may come to us for features, they may come to us because they just want to know that somebody will be there to help them, you know, with a contract in place, should anything be needed.

Features for Growth


Mike: We mentioned that Cilium is a really broad product. Is there one particular product feature that you see driving the most growth, going forward in the next couple of years?

Liz: That’s a really great question, because we do have you know really, really powerful features in a number of different axes. So, for example, we just did a partnership with Griffon, where we’re building some really great dashboards, again a big part of this is available, completely open source.

There are also going to be some additional Enterprise features here. Perhaps the thing that strikes people is that they get this amazing visibility. And you know, that could be the moment when they realize, “Huh, look at the power of Cilium!” And the fact that we can see all these latency metrics or security information being shown in a visual way. So, that could be one thing that really drives growth.

It could be Service Mesh. We have a very efficient approach to doing sidecars Service Mesh in Kubernetes. Service mesh is one of those features that when it first started being talked about in probably 2018 – huge hype, huge excitement – the reality of people adopting Service Mesh, they found that it’s actually quite resource-heavy, there are issues, instrumenting all your workloads with these Service Mesh sidecars.

I think some of the realities of deploying Service Mesh had not quite lived up to the initial expectations. And then, last year, we announced the sidecarless approach that Cilium can bring. And mostly through the power of eBPF, it’s incredibly efficient. We can shortcut a lot of the path that a network packet has to take through the Service Mesh.

So, I think that’s another area that can be a real driver for growth, as people realize they can get all the benefits of Service Mesh, but without the overhead that they’ve come to associate with it.

And then, finally – security. I think I mentioned earlier the runtime security tooling that we’re able to provide through eBPF and through the Tetragon project, combining in a really performant, efficient security tooling. At the moment, everybody’s focus in security seems to be on supply chain, but they also still have firewalls. I’m quite a big believer that we have runtime security, everybody has runtime security in the form of firewalls.

We just were on the cusp of people understanding how powerful this new generation of runtime security tools can be to essentially firewall, not just Network packets, but things like bad executables or unexpected privilege escalations, that kind of thing.

Mike: Does the breadth of the product ever feel like a curse? Wouldn’t it be so much easier if there was just one application, and we can focus the marketing message and the sales, and all is just this one thing?

Liz: I’m sure the marketing team tasked with coming up with a tagline would find it a curse, yes.

Lessons for Open Source Startups?

Mike: So you’ve been in the techs business for a long time, taking off your Isovalent hat for a second and just as an observer of the startup scene, and other than the open-source scene in, do you have any advice for particularly entrepreneurs? Because this podcast is really designed first for founders, any advice for founders?

Liz: Yeah. This is actually something I’m getting increasingly interested in and I’m working with the CNCF on how we can encourage businesses on how to operate and be successful with open-source based businesses. There’s two sets of vendors who I would say have quite a lot to learn, particularly if they come into like a Cloud Native community audience.

There’s one class of vendor who is open-source based, they have an open-source project that they’re building their business around. The second class is people who are not open-source, but they have a product that they want to sell into the primarily open-source based Cloud Native community.

I think for both those sets of people, really understanding how powerful community is, Cloud Native community is kind of where I’ve lived for the last, I don’t know, half a dozen years. And it’s incredibly powerful, the relationships that you can build up – not just between individuals, between organizations, can be a really solid foundation for the business relationships that you then build on top of that.

And I think the real lesson for a lot of vendors is: don’t just expect to turn up at an event, pay for a booth or a table, and expect people to come and buy your software. Invest in time as well, invest in contributing, get involved in our project, get involved in the cigs and tags.

Don’t just expect people to immediately think that your open-source project is the one true amazing solution. Take the time to learn what other people are doing around that, and then, have those conversations about why your solution is great and what its strengths and potentially weaknesses might be. Learning to get involved in a community is really, really important.

Closing Notes


Mike: Well, I think that brings us to a close. Liz, thank you so much for sharing and best of luck with Isovalent and Cilium.

Liz: Thank you so much.

Mike: Again, special thank you to Amanda Brock and the whole open UK team for launching the State of Open Conference, where we recorded this episode. Cool graphics from Kamal Bhattacharjee, music from Broke For Free, Chris Zabriskie and Lee Rosevere.

Remember how Liz said that eBPF and Cilium are really good for Service Mesh? Well, remember that, because next week’s guest is Idit Levine the founder of Solo.io.

Until next time, this is Mike Schwartz, and thanks for listening to Open Source Underdogs.

Episode 62: Amandine Le Pape, Element CO-Founder / COO, Messaging and Collaboration

Almandine Le Pape is the Co-Founder and CEO of Element, the the company behind the Matrix protocol, which deines a “chat” and collaboration protocol that enables federation across Slack, Rocket.Chat, Element, and many other implementations.

Episode 61: Interview with Nauren Batjargal, Co-Founder & COO of Erxes, a Leading Open -Source Customer Experience Platform

Intro


Mike Schwartz: Hello and welcome to Open Source Underdogs! I’m your host Mike Schwartz, and this is episode 61, with guest Nauren Batjargal, Co-Founder and COO of Erxes, a firm based in Mongolia that produces an open-source CRM and Customer Experience Platform. It is the first crowdfunded startup I’ve interviewed in the series. So, without further ado, let’s cut to the interview.

Mike: Nauren, thank you so much for joining us today.

Nauren Batjargal: Thank you for having me today.

Mongolia


Mike: You are the first open-source founder I’ve spoken with from Mongolia – is there something special about Mongolia that led to the development of this open-source platform?


Nauren: It’s minus 40 degrees right now, Celsius degrees, in Mongolia right now. It’s actually some of the coldest places in the world right now, so…yeah, here we are. Just doing the things that we do every day. Except the cold.

Mike: Where is the team located? Is there a critical mass there in Mongolia, or you are globally spread out.

Nauren: Yeah, we’re globally spread out, but the majority of the team and the development team is based in Mongolia.

Why position directly against Hubspot?

Mike: So, I liked the description of Erxes on GitHub. It says, “The open-source HubSpot alternative enables SaaS providers and digital marketing agencies/ developers to create unique experiences for their entire business.” I’m curious, why did you choose to position yourselves there versus HubSpot?

Nauren: We started the whole business, I mean, substituting the HubSpot, because, basically, we started the Erxes when we were the marketing agency. Then, like, while we’ve been marketing agency, and that we had to obviously generate some leads. And then, at the same time, looking after some of the existing clients as well as nurturing and implementing the project, at the same time with the limited human resources we had. And we’ve been using Intercom and HubSpot, Pipedrive, I think. You could name most of the marketing tech tools we’ve been using.

Partially because the single tool can only fill the part of the business life cycle. There was a lot of manual work behind using those several tools, as a small company. Most of the time, only four or five people are using four or five different tools, but then, there’s so manual work at the back. But then, on the other hand, it was too expensive for us.

So, that’s how we started. The main plug-ins, what we call it now, the main features that we have is what really HubSpot does. And also, explaining this kind of tool is really difficult. I use HubSpot to give an idea for everyone, like it’s an easiest and quickest way. So, that’s how the name came up.

Value Prop

Mike: What are the most important value propositions for your customer?

Nauren: There’s so many tools out there, and an average company uses at least 5 to 10, some like more than 10 tools they use in their everyday operation. Just using those so many different tools can lead so many ineffective and manual work. And also, eventually, it makes each team start talking in different languages – purely because the database they’re using is not the same. And those tools don’t often talk to each other, which directly affects the costs as well as the growth of the company.

The biggest value proposition that Erxes offers is, make the entire company talk in the same language. Because, the open-source, you can customize it entirely to fit to your business. And it has more than 48 plug-ins that can fit into every single of your different field, or different teams that you have. And even if Erxes doesn’t have any of the tools that you require, maybe you can develop one, or maybe you can integrate it because it’s open-source. You can actually do that. Plus, it’s open-source, and compared to some of the closed tools, it offers fairly sustainable price-friendly options.  As long as you could manage maintaining, and configure, and all those technical work that you can manage doing it, yeah, you can have better pricing options that can have you grow better.

Technical Skill Required


Mike: There’s a funny saying that I always think about, which is that open source is only free if you don’t value your time. Because there is a care and feeding aspect to operations.

Nauren: We have a service that we provide to save our customers’ time, to help to set up all those technical work. I know when you start a new tool, it’s a lot of work – especially with the tools like Erxes or HubSpot. It’s a lot of time, but once you get to know this value proposition and once you decide to move forward to this, there is a lot that you can benefit from.

Monetization


Mike: Which actually brings us to a good question about monetization. How do you monetize a SaaS license, plug-ins, APIs, and which monetization strategies are actually the most important to the company in terms of both current revenue and growth?

Nauren: Because we started and we had to bootstrap, we’ve had a number of enterprises which have like a large number of customers. Most of them operate in highly regulated industries. We offered them a tailored solution and like a dedicated support. What we aim in the future is to support partner companies as well as developers, independent developers, who can benefit from us, so then, we can earn from our support, as well as from the percentage from their revenue.

That’s one way of revenue-generating. And also, some of the plug-ins that we have are paid plugins – that’s the other revenue-generating plan that we have.

Moving from Enterprise to SMB?

Mike: So, you are really looking to figure out how can you really grow into the SMB space, which maybe would have better growth for you.

Nauren: That’s right, that’s right. That’s the biggest challenge that we have. Last year, we prepared our technology to be ready for this growth and resistant. But then, this year, we go into purely focusing on building the community and supporting those developers within our community, and make sure our tool is now developer first, shifting from an enterprise first to a developer first, I would say.

Product Focus

Mike: You mentioned that, perhaps, you’re going to introduce commercial plug-ins – which area do you see contributing to the most growth in the future?

Nauren: Yes, we already have a number of commercial plug-ins. This year and the next couple of years, we really purely focus on developers building the great developer roadmap and supporting them. And whichever way this will lead us, we will follow it. Because we started listening to the developers, and yeah, making the whole road to be smooth and easiest as possible.

Segmentation?


Mike: So, with regard to your business plan going forward, marketing technology – it’s a very horizontal market, which makes it very challenging, as you know as a marketing expert. What is your plan to segment the market? Is developers your segment? Or is there any other way that you’re looking to segment the market going forward?

Nauren: You are right. We’ve been doing marketing ourselves for the last 10 years. One thing that we know is, depending on who they are, and even though the companies operating in the same place and doing exactly the same thing, in the same industry, when it comes to marketing, they all require completely different thing from one another. Building a tool for them – it just doesn’t work if it’s just one SaaS tool. And that’s why we started this open source.

And the biggest advantage Erxes has is, whoever doing marketing is using Erxes can make the tool fits completely entirely for themselves, just like Lego. So, you could just make little changes within the plugin, and also you can add additional little bits and pieces to make it fit entirely, especially all those additional tools that communicate within the organization as well – you can sync it all together, sync the data all together, and eventually work as one.

So, in that way, anyone who uses marketing, whether it’s different or the same, you could have your own tool. Because we made a mistake over the years.

Like in the past, we were trying to segment the market, and then, we build something and then the next thing we jump in, and it turns out to be completely different. And then, we create another plug-in, and we create another plug-in. That’s how we already have 48 – like, so many plug-ins we already created. Even in the same industry, they require completely different tools. I mean, being open-source, it just helps make this tool to be suitable for everyone really.

Product Best Positioned for Growth


Mike: And in your marketing strategy, do you see your cloud-hosted offering as being a bigger driver for growth or the plug-in license revenue?

Nauren:
We always believe in open source. And we believe that the open-source plug-in is the biggest growth potential that we have.

Origin

Mike: When was Erxes actually started exactly – what year?

Nauren: The idea was initiated in 2016, but officially started in 2018. So, it’s six years.

Challenges of Mongolia


Mike: Just getting back to Mongolia for a second, because it is a very remote place. Have there any challenges from being in Mongolia?

Nauren: In terms of being an entrepreneur, being a developer, it’s the same – we are just using the computer and talking to you at the midnight in Mongolia. It’s normal, just like any other entrepreneur on a daily basis – it is the same. Except the weather and the atmosphere. Mongolia is based in Central Asia, and the Covid and all these political and economic challenges that we’re facing – it affects some of the members of our team. Otherwise, it’s just pretty much the same, you know.

Mike: Interesting. Yeah, thank you for sharing. Any advice for entrepreneurs who are launching a business around an open-source product?


Nauren: I mean, it’s the same. Whether it’s open-source or SaaS, you got to be really tough, stick to your decision and to make sure you love it. And then, to be persistent in challenges that you would face along the roads. Starting the business is not easy. Whether it’s related to technology or any other industry, it is the same. It’s challenging. So, you just make sure you be prepared.

Mike: Nauren, thank you so much for joining us today, and best of luck with the Erxes.

Nauren: Oh, thank you very much.

Mike: And thanks to the Erxes team for reaching out. Cool graphics from Kemal Bhattacharjee. Music from Broke For Free and Chris Zabriskie and Lee Rosevere.

Sorry for the long delays in releasing episodes. Being CEO of Gluu has been keeping me busy. But I’ll have two more episodes in the next few weeks: Liz Rice from Isovalent and Amandine Le Pape from Element. So, until next time, this is Mike Schwartz and thanks for listening to Open Source Underdogs.

Episode 59 – Igor Farinic, Evolveum: Open -Source Software Vendor in the Identity Management and Governance Space

Intro



Michael Schwartz: Hello and welcome to Open Source Underdogs episode 59, with guest Igor Farinic, Co-founder and CEO of Evolveum. For those of you who don’t know Evolveum, it’s a European company based in Slovakia that specializes in Identity Management and Governance. This kind of software is used by Enterprises to provision and manage users and their entitlements within the organization, which is of course critical for security. I’ve known Igor for many years. Right before the pandemic in March of 2020, I had dinner with him and his team during an industry conference.

And I was super impressed with their passion and dedication. And I know that this level of engagement comes only with a great leader who builds a strong culture and mission. So, while Evolveum might not be your typical Bay Area unicorn, I think there’s a lot we can learn from Igor and Evolveum. And it was a long overdue interview, so here we go. Igor, thank you so much for joining us today.

Igor Farinic: Thank you for having me, Mike.

What Is MidPoint?

Michael: For those in our audience who are not Identity gurus, what types of challenges does Evolveum MidPoint help themselves?


Igor: There are so many challenges in that digital Identity security space we are selling. For every vertical, it’s a different story. Most of the challenges are pretty common, so you have to connect your source of data, which is usually HR system. Then, you have to onboard your people, persons and transform them into digital identities, and then do something about those – do some application account and so on. That’s pretty common for everyone.

Origin

Michael: So, how did Evolveum get started?

Igor: The previous recession actually, we were out of a job, with Radovan. Radovan is fond of the co-founders. We were looking for new opportunities and we had to develop next-generation open-source Identity Management system, but after some time, the company have been on the product. And we were hit very hard. So, actually, we did not have many options left. After some time, we decided to continue developing the open-source code based at what’s already in place. And actually, we helped transformed that and rebranded it into MidPoint. It was natural for us to remain open-source.

Early Days

Michael: Getting the momentum, or like the starting velocity in something like that, is really hard. Did you have some lucky breaks or some initial customers that it really made it possible at the beginning?


Igor: We were very lucky actually. We had like two or three groundbreaking partners and customers that helped us a lot in the early days. Without them, we wouldn’t be here today. After two years, we ran out of our investment money because we were invested by friends and family, especially out of our own pockets. So, thanks to these partners and customers, we were very lucky to start getting first subscriptions money, we took off and, yeah, we are here today.

Market Segmentation

Michael: So, Identity is such a broad horizontal market, does Evolveum segment the market in any way? For example, by vertical market or use case?

Igor: We are building strong partnership network – that is our primary focus, and we are not segmenting directly, but some of our partners are focusing based on some geographical location, some are focusing on some verticals. And also, some of them on different deployment models. Some partners are building a new product or code product on top of MidPoint.


Customer Profile

Michael: Can you talk about the range, some of the vertical segments that you’re serving – what some of the customers look like?

Igor: I would say we can serve all the verticals. Our partners can serve all the verticals. But there’s segmentation, like in the United States we have very strongly academic deployments. And in Europe, there are more verticals that are covered, banking and financial institution, Academia and so on. And governments as well.

Sales Channels

Michael: How do you find customers at Evolveum? And what would you say are the most effective sales channels?

Igor: Our primary focus is, I would say, inbound marketing. We are trying to produce the best content we can. We are publishing everything for free. We are pure open-source software, so, we do various things in open domain, not only code, but also documentation, and all the content is open.


Monetization

Michael: So, let’s talk a little bit about monetization. What does Evolveum actually sell?

Igor: Primary subscription. Over the last two years, during the Covid, we have transformed 85-90% of our revenue subscriptions. And this is very good for us because it gives us much more opportunity to produce even more content and even more code thanks to the subscription.


Michael: I guess you’re talking about support subscriptions?

Igor: Yes. Support subscription.

Michael: Some people would say that it’s a challenge to scale that business model
because it’s so hard to find good people, and Identity is really a multidisciplinary set of skills – it takes a lot of time to train. What are some of the challenges you see with the support subscription model?

Igor: Yeah. Actually, the only challenge with a subscription model – you have to move forward and start providing value to the customers to get the subscription from them. And to get to that point, you have to deploy the product. We are happy to have so many partners that actually are doing the implementation work for us. As I already mentioned, we have now almost 90% of the revenue subscription, so we are not doing implementation work. Almost no implementation work anymore. Even older subscriptions are thanks to our partners because they are deploying the product for the customers. And we have decided that we have pre-recorded all our trainings and are providing this trainings to our partners for free to improve the knowledge and speed up the process for implementation projects for the customers.

Open Core?

Michael: Have you ever been tempted, or have you ever discussed any ideas to move to open core, to add some extra bells and whistles in a commercial product?

Igor: Not, not really – we have also made a public pledge to stay open. There were some events in the Identity space or there’s some products that started as open-source and they are moving to goal source. That was the time when we have made this public pledge. And actually, I’m also listening to some of your podcasts as well. These are great for inspiration. And I remember there were some previous that some of the products or the other way around all being open-core and starting to open-source everything.

And actually this is the same situation here: to keep different processes or infrastructure in the company. It’s very complex. It’s asking from us to do everything in public space. It’s much cheaper but simple, and so on.


Cloud?

Michael: What about in the Cloud? You know, the other two big business models that we see most commonly are Open Core and Cloud. And I know at Gluu, I would say, every other year, we had a conversation about a Cloud version of Gluu, but what about Evolveum? You mentioned some of your partners are launching Cloud services. But have you considered launching a Cloud-hosted version?

Igor: No. We are having a very close communication with our partners. We are doing a lot of partners webinars. And we have decided that we will improve the MidPoint, that it will be Cloud-ready. And the partners will take over and they will do the operation of the code version of MidPoint. So, we are somewhere in the middle right now – it’s already code-friendly, very code-friendly. It just needs to focus on their long-run upgrades, updates and so on. So, this is to be a result interest in the next LTS version of MidPoint.

Community

Michael: So, building the community is always a challenge in open-source ecosystems. And I’m wondering, are you seeing any contributions from the communities? And if so, in what areas?

Igor: From the early days of Evolveum, community was very important to us and remains very important. No one is contributing to the core of the MidPoint or codebase, but that’s perfectly fine, because we helped many contributions that are outside of the community core. Like, for example, the community is developing connectors. There are so many connectors out there that are open-source. And I’ve been only able to develop community that is making MidPoint as a platform very strong.

We held translation to 18 different worldwide languages, which is great. We are using Transifex platform to coordinate the activity, and most of the translations are up-to-date with each release and 100% translated. So, that’s great. We are saving a huge ton of money on our own translations here.

I would say also the community management is pretty active. Community managements are our best effort channel for us. Now we are trying to have a community that is not only asking questions but actually helping. And we are motivating our partners to help the community. So, that’s very important for us. We have also written and distributed our own MidPoint Identity Management and Governance. And we have also translated this material and people are contributing improvements, I mean language and so on, to the book as well.

For us, even the subscribers are the community because they are primary contributing the money that is paying our builds. And thanks to them, we can build even better products.

Translation

Michael:  Just for my own curiosity, I have a question about the language translation – how deep does it go? Are we talking about not just the interface but also the logs and the documentation? And you mentioned the book – are there any places where the translation doesn’t go?


Igor: All user interface. So, it’s not only end-user facing interface but also administrative interface. There are several thousands of keyboards that are being translated. Thankfully, everyone is happy with the documentation in English that we are providing. So, this is not being translated just for the book. The book was translated to a few languages.

Team

Michael: Okay. I’m curious about how you build the team. What’s the geographic distribution sort of the team at Evolveum? And how do you find people?


Igor: We have many challenges over the years to actually build strong team, but now we are very happy with what we have inside the company. And yeah, there are many, many challenges, but what we are focusing right now on, internally we are using Slovakian language and our market is Czechoslovakia – Czech and Slovakian people.
Internally discussing, if we actually change that inside the company and start
hiring in other geographical locations. But for the time being, we have like 26 people working for us in the company right now. And we are preparing for the next round of hiring. And we will see how it goes. If we start hitting challenges in our market, we are ready to transform and start hiring more internationally.

Competitive Threats / Future?

Michael: What do you think are the competitive threats to Evolveum? Is there anything that keeps you up at night?


Igor: Actually, I have a pretty good sleep. I am happy wherever we are right now. Yeah, there are always challenges that we, as a company, would like to start resolving. Because we help resolve the situation, we have a very stable platform, actually provisioning and connectors are stable. So, we are able to do the basic job, we are also in the Governance.
We can do certifications, we can help get visibility of data, people have access, where and why. And now, we are actually opening new streams – it’s not only Cloud on one front. On the other front, we are experimenting with recommenders for various situations. Then, we also started experimenting with machine learning and so long to bring much more benefit to the community.

Advice For Entrepreneurs

Michael: I think we’re sort of coming to the end. And one question that I ask all my guests is, if they have any advice for new founders. I guess I’d like to add to that, do you think that now is a good time to start an open-source enterprise software company? And if so, what advice would you give to that founder?

Igor:  I would say it’s a great time. I have seen a lot of analysis where open-source products are taking over and actually having a great time. I will tell you it’s a great time to start open-source business. And for us, what was very helping in the past, it was pretty common that everyone was expecting open-source codes for free. But we have very strong boundary with our software – you can download it, you can do whatever you want with the software if you follow the license, which is pretty, I would say, great because it’s Apache license and UPL license. But if you start approaching gaps and would like our assistance, we are very strict that we are not doing services for free.
It was very hard in the early days, but over the time when we became a recognized platform, it improved so much that people are not expecting that anymore. And that’s great.

I would also say that if you compare open source to commercial products, then open source is not free. The expenses for open source are different, like for example, you don’t have to pay for the licenses but you still need to find people to pay to do the implementation and deployment. Someone has to do that operation for the solution. And you still shall pay the support. Personally, I myself wouldn’t go into a production where I’m managing maybe 1,000 or 2,000 Identities and actually don’t pay support contracts. Identity is so important for the business that I wouldn’t use that.

Close

Michael: Well, I’m sorry we didn’t have this conversation earlier because we’ve known each other for so long. But thank you so much for being on the show, Igor. And I’m wishing you the best of luck as always.

Igor: Thank you, Mike.

Credits

Michael: Thanks to the Evolveum and Gluu teams for helping me to pull this episode together. Cool graphics from Kamal Bhattacharjee. Music from Broke for Free, Chris Zabriskie and Lee Rosevere. If you liked this episode, don’t forget to tell your friends.
And if you’re interested in open source, especially if you’re based in Europe, you should check out the state of Open Source Conference in London, February 7th, 2023. I’ll be there, and I’m even recording a podcast live at the event.

So, until next, time thanks for listening!

Episode 60 – Robotic Process Automation with Antti Karjalainen, Founder / CEO of RoboCorp

Intro



Michael: Hello and welcome to Open Source Underdogs! I’m your host Mike Schwartz, and this is episode 60 with guest, Antti Karjalainen, a co-founder and CEO of RoboCorp.

RoboCorp is a vendor in the RPA or Robotic Process Automation software market. It’s a type of software that allows businesses to automate repetitive and routine tasks typically done by humans through the use of software bots or robots. These tasks can include things like data entry or customer service interactions. If you’ve ever gone to a website and a chatbot pops up – that might be powered by RPA.

As you can imagine this software market is growing rapidly as more businesses are looking to automate their processes and improve efficiency. RoboCorp is a newer business than I thought at first, given how thoroughly they’ve established a leadership position in this very competitive market. Antti has a lot of great insights, so without further ado, let’s cut to the interview. Antti, welcome to the Underdogs podcast.

Antti: Thank you, Mike.

Origin

Michael: So, no founder interview is complete unless we hear the origin story. I take it as a young undergraduate student, you probably didn’t predict your career in RPA. So, how did you get into the industry and how did RoboCorp get its activation energy?

Antti: Yeah. I mean, that’s a long path obviously when we talk about these kind of founding stories. It all started with me just by doing software engineering work after graduating. And I ran a small consulting company around software engineering. And with that, we used to do a lot of Q&A test automation with a project called Robot Framework. It is a python-based keyword-driven test automation framework. I got into that community while using it. It is based out of – well, the project came out of Nokia, so that’s why the Finnish roots.

I got into the community, started doing things around the open-source project, hosting events, stuff like that, and then, I bumped into RPA, which is starting to emerge and take off around 2016 and 2017. And I thought immediately that that has a lot of commonalities with the test automation. In test automation, you obviously drive a system to validate it, and in RPA, you drive a system to perform a business process. So, I thought that maybe Robot Framework could become the leading open-source community for RPA and started on that path eventually after my first company got acquired.

So, a few years later, I’m looking at the market and there’s this big competition emerged, raised a bunch of money, started growing really rapidly, and RPA was the fastest growing segment and Enterprise software for like three years in consecutive.

So, I thought that somebody needs to build an open-source solution for that, and I didn’t see any other person having the right connections to do it, so I decided to start on that path myself and that sort of lead into RoboCorp. I felt that I had to do it in a way.

Product

Michael:  What are the products that RoboCorp sells?

Antti: We sell one product, which is the Control Room. That’s the proprietary component in the stack. That’s the orchestration platform as we call it in RPA. That’s how you deploy the bots, manage them, govern them and manage user rights and so forth. So, it’s really a central piece in how RPA works and how the bots actually get to execute work.

And then, we have a bunch of other components in the stack. You know, namely the code open-source stack, which allows you to build a bot and run it. And then, obviously all the automation libraries that enable you to connect to various applications, from browsers to mainframes, to ERP systems. And then, we have the developer tooling on top of that which creates a good developer experience. So, anything really outside of the core control room platform is open source with us.

Low Code Strategy

Michael: One way that RoboCorp has been innovative I think is through the use of Low Code. And why do you think that Low Code is so critical in your market?

Antti: In RPA, you deal with different sorts of developer personas. Some are very technical, come from a developer background, others might come from a accounting background for instance. So, when RPA got popular, it was marketed as something that anyone can really use to build these bots. But then, as it got adopted into the Enterprise, it sort of went into more complex use cases, more mission-critical use cases. So, it became a automation professional domain.

We started out with the automation professional in mind and built this Robot Framework and Python-based tools for them and got initial success with them, but we soon realized that it’s too different for the developer persona to be targeting.

They expected to have a drag-and-drop interface in front of them. So, we started thinking, okay, how can we innovate and create something that’s actually meaningfully different in that space. And so, we built a local layer on top of our open-source stack, which allows you to create a local solution, but it generates code in the back end. So, we call it “Code Native Low-Code”.

So, you work on this drag-and-drop interface, you build the automation from individual steps, which might be like opening browser, clicking elements, etc., and in the backend it’s converting that real-time in the code. And back, if you edit the code, you’ll see it in the local as well.

So, that was just the market expectation, and we wanted to sort of not be an outlier there to be perceived as more difficult than the competition, while in real life it really isn’t.

But coming from a background where RPA developer might not have actually written a line of code, presenting them with a VS code editor is just too jarring of an experience. But I think we balanced it the right way, where we can still keep the both worlds next to each other, low-code and then pro-code, as we call it here.

And it has been a pretty interesting journey to build something that hasn’t been built before that way.

Community

Michael: Can you tell us a little bit about the community? You mentioned you started with an open-source project in Python – were you able to bootstrap that community into the RoboCorp community? And how is it going building that community out?


Antti: The Robot Framework Community is pretty extensive. I think the project gets around 1.5 million downloads a month from Python package index. So, it’s used extensively in end-to-end testing in Q&A. And initially, what we took out of that was all the integrations that had been built over the years.

So, we get to leverage this massive base of all these libraries that integrate into various systems that Robot Framework was used to test, started out building our own tooling. And sometimes, the test automation community doesn’t really overlap with the RPA community, so we had to start building our own community as well. Sometimes they do overlap. We have customers who are now consolidating their test automation engineering, first with the RPA engineering, for instance.

We have customers who are coming into our products because they know Robot Framework already, and so they’re experienced with the tech and have confidence in it. So, to a decree, this overlap in those communities, it feels like we are building these two parallel communities that overlap in parts – it’s like a Venn diagram in a way.

How Low-Code Impacts Onboarding

Michael: One of the areas I feel RoboCorp is doing a really good job is by reducing the friction to onboard people into both your community and also into the commercial engagement with RoboCorp. And I wonder if low-code is maybe a gateway for people who go into the pro-code area. But can you talk a little bit about how that journey works from getting newbies and getting them in to be RPA professionals and customers?

Antti: Yeah. For sure, low-code isn’t a big enabler there. You’re not staring at like a blank screen, but you have all these capabilities listed as actions that you can start dragging on a canvas. So, it’s something that pretty much anyone can start doing, and you don’t have to have an in-depth tutorial or training to be able to do that. So, it’s a big enabler.

And also, by the way, we see the test automation community now starting to leverage the automation studio, the local tool as well. It is definitely excitement – low-code. And for good reasons. I mean, you can frame out some solution that you have in mind in minutes rather than learning the syntax from scratch.

And then, when you want to refine the solution, you can go into the code and start customizing it, maybe building custom Python in the creations, Python keywords and so forth. It is actually something that I prefer to use even with my developer background. If I start a new project, I start it with the low-code tools frame it out, get the structure right, and then might go in the VS code and I finish it up. But it’s such a big step up in the ease of getting started that you don’t really need to install Python, bunch of libraries, figure out your Dev environment, all of that – that just goes away. That just gets easy, but both sides of the community, pro-code people and the local enthusiasts like to use it.

Cloud Native Impact

Michael: So, one last technology question. Cloud Native has been a really – I mean, for me at least, it’s felt like a monumental shift in sort of how the customers deploy and operate. And I’m wondering if you’ve seen something similar in the RPA market, where Cloud Native has impacted or open new opportunities for delivery?

Antti: Yeah, definitely that’s a big part of what we do. The Control Room itself that the orchestration platform does, some Cloud Native SaaS solution – that’s something that you can just few minutes click into it and get an account going. That’s a great way to deploy RPA across a number of organizations, a number of different companies if you are a service provider, for instance. Building obvious solutions, you sort of have this single pane of glass that you can operate across.

Now, with RPA is also a double-edged sword. It sort of comes with benefits and the negatives as well. RPA is typically something that you do with applications that might be inside corporate firewalls, inside private Cloud environment. So, the bots actually need to operate typically in on-prem environments. And still, we use a Cloud Native solution to deploy them. And there’s a lot of architecture and engineering questions that we had to solve to make it as secure and robust as possible, to make it happen and be seamless for even the largest Enterprises to be able to adopt it.

Obviously, the benefit is that you get a single version deployment, you don’t have to go through installing a lot of infrastructure to get it started. You don’t have to update versions, you don’t have to maintain databases and so forth, but I think, especially with RPA, since it’s dealing with quite sensitive business processes typically, it deals with sensitive data as well user information, healthcare information, financial information, the security questions around that information are significant, and also compliance. So, that’s one key part of how we architected the Cloud Native products from the beginning, to be able to service on-premise use-cases.

Customers

Michael:  Who are the customers of RoboCorp today?

Antti: We serve a number of different types of customers. First, starting with the Enterprise, we have a number of large Fortune 500s and Global 2000s in the customer base. Some of the public references are companies like Emerson Electric, Ally Financial in the US, and there’s a lot of Enterprise customers that are still not public referenceable. But then, additionally, we have a large base of implementation partners – they have different business models, so they might offer a managed service on top of RoboCorp, where they build business process automation and deploy that across customers. It might be healthcare specific automations, it might be insurance – really any vertical, you name it – and then, there’s the system that created community who offer services on and around RPA.

We cover from mid-market customer base, in broad range of verticals and geographies and all the way to the highest Enterprise tears.

Segmentation

Michael: It’s interesting to hear you say that you had partners who are maybe developing business specific vertical solution and then marketing them – is that a strategy for segmentation or are you trying to identify, my guess, markets that you can deliver business value into and partners who can deliver that?

Antti: Really, it boils down to direct Enterprise customers, and we do get some mid-market customers that are good with us. But then, the partner strategy is really in the core of the company. The opportunity with RPA is so vast, so you can basically imagine any kind of company and they will have use cases for RPA. So, it comes down to whether the customer has a team of their own around business process automation. They might be using API-based solutions, all kinds of intelligence document processing, and together with RPA, to build end-to-end solutions inside a corporation.

Or then, when we go into the mid-market and below, it becomes a use-case driven segment. So, that’s where you need to know the specific ins and outs of, let’s say, mortgage origination. Their partners are better off to serve their own sort of expertise area. It is basically we sell directly to sort of teams inside Enterprise, and then, we have the partner ecosystem to serve on a use-case basis. That’s how we think about it.

Partners

Michael: Are these partners globally distributed?

Antti: Yes, definitely. We basically have partners across all the continents. It is really distributed right now, and there’s different categories of partners as well. Some of them might offer business process outsourcing services, some of them are automation pure-play vendors as we call them. So, they specifically focus on automation services. And then, they are the big force, the accounting companies, so they will typically also deploy RPA with their customer base.

It’s really wide range of different kinds of partners. And within that base, there’s different kinds of business models that they deploy. Everything from reselling into consulting, into system integrator work, into managed services.

Team

Pricing

Michael: Is the RoboCorp team similarly globally distributed?

Antti: Oh, yeah, for sure. We are right now, I think, in nine different countries, about 50 or so people at the moment, adding headcount right now. But we are fully remote company and we’ve been like that from the beginning. So, engineering, typically, is around Europe. And we do have a big base in Finland for engineering, but it is also distributed as a product engineering design. And then, our partner operations are right now led from Europe, and then, the broader go-to-market team is in the U.S. so, sales marketing customer success.

Michael: I always warn founders about how hard pricing is. There are a number of strategies to price I saw in the RPA market – what is a RoboCorp strategy and how long did it take you to get there? Did you get it right the first time and where are you today?

Antti: Oh, man. I mean, pricing is really difficult, it goes across everything really. When I got started with RoboCorp, I started kind of building the vision for the company. Now, we knew that we wanted to be the open-source standard for RPA for sure. We wanted to innovate around how do you build bots, how do you operate and manage them at scale, deploy them at scale, all of that stuff, make it more robust and resilient and faster, all of the technical attributes that you want to have for solution like this.

But then, the second big innovation there was around pricing itself and the business model. RPA traditionally has been really complex in license, and you can imagine this like a large Enterprise pricing scheme, every item has their own price tag, starting from a developer license to a test license, to an orchestrator, to a bot license, to an attended bot license, and you name it.

We wanted to make it really simple. We sort of went back to first principles and started thinking about, “Okay, what is the best proxy for value in RPA?” Traditional RPA will be pricing bot licenses.

So, essentially, you have a bot license that allows you to run one bot at a time. If you want to run two bots at a time, you purchase another license or so forth. And if the bot isn’t doing anything, you are still paying for the license. We thought that the better capture for value is going to be around consumption, and namely the working time of the bot. So, whenever your bot is working, you’re producing value, and so that’s the proxy.

We were the first one to build a consumption-based pricing model. And we did it from the beginning and started building the whole platform with that in mind, that we wanted to get rid of the concept of a bot license and go to consumption. And that still works, people love it. And they like the sort of flexibility of it, they don’t need to know how many licenses they need to purchase in advance. People will have peak demand loads at the end of the month or end of the year, end of the quarter, they will run reports that the bots will do. And those can demand hundreds of these bots working at the same time.

So, it really allows them to think of the processes from the best engineering perspective rather than thinking from a licensing perspective. That was my good starting point, but then comes all the details, like all the small details. Okay, you’re running a bot that needs to work 24/7 with a minute best price that becomes really expensive. So, we needed to add billing caps on a process-by-process level to cap the value at some point.

You want to do parallel execution, these kind of things – there’s different ways to really make it work. When you go into the Enterprise, you get into these conversations of, you know, we are ramping up, we have all these plans for RoboCorp, but we don’t know how much we’re actually going to consume.

If they’re coming from a legacy RPA platform, we are typically two to three times faster to execute, but they really cannot know in advance. So, we need to make provisions for first year, onboarding, ramp up, all that stuff. So, pricing is really, really difficult even though we try to come up with the most simple and elegant pricing scheme possible. And it’s still an ongoing process – we are actually redoing some of the pricing right now as we speak.

Value Prop Evolution

Michael: From the day you started, you had a certain value proposition in mind. And what are the most important parts of that value proposition today that maybe differ from where you originally started?

Antti: You know, we thought out that we will have this more of a bottom-up approach to RPA, where you can simply just download tools, explore them, build something, and then get it into use, into production as a self-service motion. And we thought that that would take us into a growth path.

So, we built the product in a way which allows you to do like full self-service, but then, over time, we realized that in RPA, you typically have a different buyer than the technical user is. And the buyer is very non-technical. So, we needed to start adding a lot of this sort of top-down aspect to the product itself and into the selling motion itself.

You know, in the recent years, I realized aspects of the value prop that we even didn’t fully understand ourselves, things around being able to store the bot code in GitLab and GitHub and user version control, now, the typical low-code solution doesn’t do that for you – it is all a proprietary XML-based model that you operate with, so that really isn’t a facilitate versioning.

When we went in first time and did like larger financial institutions, they told us that, “Hey, we chose you for one reason: because we can actually audit the bots, we can put code review processes around these bots.” And not for the reason of validating that the code is good quality, but actually, validating that the digital worker doesn’t go rogue, doesn’t do things it wasn’t intended to do.

So, the fact that we can do proper version control actually meant proper governance and controls and compliance for our customers – that was a new thing that we discovered some time ago. As we’ve gone into the Enterprise, and we got really good success stories there, things like reusable components across the bots, so you can share code between the bots and build asset libraries that you can leverage in future bots that you build. You don’t need to re-implement all the functionality again and again, like you would do in a more traditional local platform. You know, these things have become more and more valuable over time to ask on the customers.

Advice For Open-Source Entrepreneurs

Michael: I guess, as we tie this interview up, I wanted to get your thoughts on the open-source industry maybe more head large. As a successful founder, what do you think are some of the challenges that other entrepreneurs who want to use open source as part of their business model are facing today?

Antti: Yeah, that’s an interesting question. Now, open source does have many different kinds of business models around it, I think. First of all, understanding what you can do around whether it’s an open core model, whether it’s a support model, or Cloud-enabled model. That’s the choice that you have to make kind of early on as you start building.

Sometimes, open source can be a one-way door. You put something out there in the public domain, you don’t get it back. So, realizing that and being mindful of what you actually put in the open-source side of your business – what’s proprietary, how do you monetize, how do you do that, it’s an important decision. And you know, we’ve seen companies in the last decade or so, going to open source and potentially give out too much of the value prop.

I think Docker has been a good example of that. Now, they’ve actually turned around and doing great, but for a while, insiders I’ve heard saying that we gave out too much, that we didn’t capture the value. So, being mindful of what the customer wants to pay and trying to make it meaningful. You don’t want to build artificial gates.

For instance, whenever somebody’s using our purely open-source stack in a large Enterprise, we’re super happy about it because that’s still using us instead of the competition.

I encourage everyone to use RoboCorp even though you wouldn’t be paying for us – that’s all-net positive to us – but just being kind of mindful of where are the gates around paid, what the value is that you’re delivering. It might be things that are sort of not obvious for technical people, like myself, where it’s around governance and compliance, which is a huge hassle for a larger Enterprise customer.

So, understanding what the intended buyer is willing to pay for is one key part of it. And second is, is there really a open-source flywheel that you can leverage, is there a community building on top of your product committing directly to your product, are you willing to take in those contributions as they come in, how do you control a community roadmap for instance? Or is it more like building a component that then gets integrated into other open-source – I mean, there’s so many different pathways that you can explore and kind of plan for us as you go forward.

Closing

Michael: Antti, thank you so much for sharing these thoughts with our audience, and I wish you guys the best of luck in the future.

Antti: Thank you. It was great being here.

Michael: Thanks to RoboCorp for reaching out and the Gluu team for helping me pull this episode together. Cool graphics from Kamal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere.

If you’re interested in open source, especially if you are based in Europe, you should check out the State of Open Source Conference in London, February 7th and 8th – I’ll be there. I’m even recording a podcast live at the event.

So, until next time, this is Mike Schwartz. You are listening to Open Source Underdogs. Thanks for listening.

Episode 58: Cloud Infrastructure Automation Platform with Armon Dadgar, Co-Founder & CTO of HashiCorp

Intro


Michael: Hello and welcome to Open Source Underdogs. I’m your host Mike Schwartz, and this is episode 58, an interview with Armon Dadgar, Co-Founder and CTO of HashiCorp, the company behind the Uber successful open-source projects Terraform and Vault.

In addition to writing one of the pillars of cloud infrastructure with over 100 million downloads, HashiCorp IPO-ed in December of 2021, with over 250 million in trailing 12-months revenue.

So, without further ado, let’s just cut to the interview with Armon, and let him tell you about how HashiCorp built this amazing business. Armon, thank you so much for joining the podcast today.

Armon: Yeah. Thank you, Mike, pleasure to be here.

Common Theme Of Products

Michael: HashiCorp has a number of great products, and we could probably fill three thirty-minute podcasts just talking about Terraform, Vault and Consul, but at a high level, what’s a common theme of business problems that these products solve and how do they fit together?

Armon: All of them are coming motivated ultimately by the same problem, which is, how do we actually build modern applications in a cloud environment. It sounds like a simple statement, but once you double-click into that, there’s a reason we have so many products. It’s really looking at, “Hey, if we think about what it means to build a modern cloud application, we want it to be automated in the delivery end-to-end, and we want to bake in security-by-default. We’re sort of changing our application architectures to be much more sort of microservice or smaller units rather than they become monolithic applications.

And so, once you sort of bring all those requirements and you end up with a whole bunch of challenges around, how do I provision that infrastructure, how do I secure it, how do I connect it all together, how do I deploy and manage the runtime of those applications. So, collectively, that ends up being the focus of our broader portfolio.

What Is Commercial?

Michael: I was reading the S-1, there’s a great sentence that describes open-core where it says, “We sell proprietary commercial software that builds on our open-source products with additional enterprise capabilities.” What are some of the examples of those enterprise capabilities?

Armon: Sure. I’ll just pick one product to make it a little bit easier. If we’re talking about our Vault product, as an example, you know, the open-source version really designed around kind of a single-data center, single-deployment use case, if we look at the enterprise features, there is a whole class of them just based around things like multi-data center.

If I want to do replication of my data across multiple data centers, if I want to be able to do a horizontal scale out from just one active node to multiple active nodes and do a sort of a horizontal scaling, if I want to do a disaster recovery sort of a replication, where I have a different hot/cold set up effectively, where I have our hot/warm I should call it, and have a different site that I can flip over for disaster recovery purposes. It’s all of those different kind of capabilities for us, sort of classified enterprise, but you have to have a license too. And that’s why we sort of describe that assignment as open-core approach.

License Enforcement

Michael: With open-source software customers get used to deploying it without any license enforcement mechanism, are you using license enforcement for the enterprise distribution? If you are, how’s that going?

Armon: Yeah. The enterprise binaries for us do require a license. We’ve tried to make it super easy so that operationally it’s not a big lift, as people go from open-source enterprise. So, effectively, you swapped open-source binary for enterprise binary – it’s configured the same operates the same.

And then, alongside the binary, you basically put the license file there. And then, the enterprise version autoloads the file. So, it’s really meant to be a very low lift in terms of doing the transition between them, but we do have a license file and it doesn’t force some level of what’s the term of your license, what’s the maximum number of entitlements. And that’s baked into the license.

Tension Between Free and Commercial?

Michael: Is there ever any tension in the product team when you think of a new feature about whether there should be an open-source feature or a commercial future?

Armon: Occasionally, I think one of the things we did early on, HashiCorp history was to articulate the framework on how do we think about what is open source, first what isn’t. And so, for us, the delineation has always been “if it’s a feature that enables our technical practitioner”, meaning, you’re the end-user of Terraform or Vault. And this feature is kind of core to that workflow of the problem you’re trying to solve with the product. Then, it really should be open source. The tool shouldn’t feel like crippled in any sense to the end-user. So, whether you’re managing one VM or a million VMs, great, it’s not scale limited, or crippled in any way.

Then, on the other side, we have a set of what we call organizational complexity, where it’s really not a feature of an individual user needs. It’s an artifact of running it in a larger organization.

And a large organization cares about things like single sign-on, role-based access control, 2FA, audit logs, security and compliance. Those are not things any individual user would care about, it’s only in the context of an organization that you run into those requirements or those challenges. So, those more cleanly fall into what we would consider enterprise capabilities.

Because we have this framework, by and large most features are pretty clear – it kind of falls into one bucket or the other. Every once in a while, you sort of get that tension of a feature, where it’s not entirely obvious which bucket it should go into, then, it turns into a bit more of a discussion. But for the most part it’s usually clear-cut.

Accounting For Support V. License

Michael: I was looking at HashiCorp FQ, and I noticed that you break out revenues by category and support was roughly three-quarters of the revenue. And I’m wondering if you have customers who are using enterprise features? Is there something about the support subscription that is easier to mark it, or why is that?

Armon: Yeah. It’s a super common misconception when people look at our public filing. And this has to do with sort of the vagarities of 606 accounting rules. So, certainly I’m not an accountant, but at a high level effectively, we sell one product. We sell an enterprise subscription to our software. That has support included. We do not sell support separately. You can’t buy an open-source only support license from us.

So, the disaggregation that you see between a license and support line, whether it’s on our 10-Q or 10Ks or S1, is purely a sort of accounting artifact forced by 606 rules. We’re forced to make some determination on what’s considered license and what’s considered support. And that assessment is actually done by a third party, by PWC for us. So, it’s entirely strange accounting artifact. You actually have to add those two-line items together, because, effectively, we only sell one thing, which is an enterprise skew, and those two-line items are combined.

Market Segmentation

Michael: You know, infrastructure product, that’s very horizontal and has practically universal appeal. It can be both a blessing and a curse, because when your product appeals to everyone, who do you actually market to or sell it to?  Does HashiCorp segment the market, and if you do, does that lead to any schizophrenia for the marketing teams or any of the other teams?

Armon: This is, I think, in some sense the best question. And I think if I could know what I know now and go back to founding HashiCorp again, the most valuable lesson I think I’ve learned — if I go back to early HashiCorp, and you ask me the exact same question, I would have said, “No. We sell to everybody. Everybody is our customer.” What we learned is that that’s a mistake. If you say everyone’s your customers, kind of the same as a nobody’s your customer, frankly.

Because the buying motions, what people want, how you would actually build a go-to-market team, are completely different between saying “I care about the Global 2000.”, the world’s largest enterprises, and “I care about the long tail of SMP.” We have almost nothing in common, frankly, from a go-to-market perspective. So, I think early on, we tried to do both. I think we quickly realized that that doesn’t make any sense.

So, it was really a kind of early 2016 that we made the decision to say, “You know what, we’re going to focus on enterprise as our initial segment.” So, we did split the market and we effectively said, “It’s the world’s Global 2000 top organizations. That’s who we care about from a commercial perspective.” Because that’s going to then tailor what are the products for building, what does our pricing and packaging look like, who are we hiring for a sales and marketing teams. And so, that was roughly our focus from call it 2016 until late 2020, early 2021, when we started actually building a separate commercial focus team to go look at that long tail.

And I think what I tell a lot of founders that I advise is, “Yes, in the fullness of time, you can do both.” Yeah, today HashiCorp does both, but we’re also at over 400 million in revenue. So, it’s a different place to be versus when you’re at zero. You don’t have the people, you don’t have the resources to be able to focus on both those segments at the same time.

And realistically, if you look at even companies like Datadog, at the time of their S-1, they were almost entirely focused of the long tail of SMB. They had very little enterprise customers.

If you look at the number of customers paying over 100,000 dollars is relatively very low. And it was really only post-IPO that they built out a team to go focus on that enterprise global segment. I think there’s an important lesson in there, which is, whether it’s Datadog focused on SMB first, up till their IPO or HashiCorp, where we focus on enterprise up to our IPO. You know, it’s very hard as a startup to do both of those at the same time.

Vertical Segmentation

Michael: Even enterprise is a broad market. I’ve noticed a lot of zero trust marketing. Do you break out even the enterprise segment a little bit more?

Armon: Yeah. Even with an enterprise, we think about it across sort of a — to some extent both a regional split as well as a vertical split. So, by and large, our business today is 85% North America.

We have obviously a small footprint in Europe, and an even smaller footprint in Asia, but we’re very North America heavy. And then, relatively light footprint in certain verticals. We’re over I think certainly the verticals that are more called cloud forward is where we focus.

So, in the early days that was Financial Services, Media, HITEX. Overtime, Retail and Manufacturing became a part of that. Now, I think you have some of the laggards, which is probably energy, aerospace, defense, public sector to an extent. So, some of those I think are just starting their cloud journey versus maybe the financial folks who started it back in 2016.

Distribution Channels

Michael: A lot of times, I asked a question about distribution channels, but HashiCorp has such a dominant position in open source. I almost have to ask it in the opposite way and say, are there any distribution channels other than open source that really are important to you?

Armon: Probably not, to be honest. Probably not. And I think the majority of our business — certainly it starts with open source, but I tell you, our business is by and large, a direct business, meaning, we don’t really go through channels, or partner to a large or meaningful extent.

And I think that’s actually been a shift in buying pattern with cloud. I think a lot of our customers don’t want to be kind of intermediated. They prefer to have a direct relationship with their vendor. And I think that’s been sort of brought about by cloud to a large extent.

Monetization Strategy

Michael: A lot of companies in the open-source space struggle to find the right monetization strategy, especially to land and expand. Did you get it right the first time or were there some important pivots along the way?

Armon: Oh, man, I don’t think we got anything right the first time. In 2015, 2016 is when we really started to do a soul search for what would the commercial sort of nature of HashiCorp be, and at the time, we have to kind of go back.

There was really no examples of successful open-source companies outside of RedHat. I mean, to a meaningful extent. Everybody else, we were sort of in the same cohort along with Mongo, and GitLab, and Confluent and everybody else. So, we’re all kind of figuring it out. Our view is that there’s only so many pads. Obviously, one option was support and services model. More like a RedHat. And I think the challenge there is, outside of RedHat, it was hard to see that scale.

I think RedHat had the uniqueness of the sheer scale of the operating system market kind of dwarfs everything else. So, it was not clear that you could really make that model work. Then, there is obviously open core. And I think there was a question of like, “Would that alienate the open-source community?” That is going to create sort of too much tension with the open-source model. So, it wasn’t obvious if that would work.

You could go with a SaaS model, but again, this is 2015, and if you’re thinking enterprise is your target customer or they weren’t necessarily ready for SaaS, you know, even in 2022, many of our enterprise customers are not ready for our cloud-hosted service.

So, depending on where you are in the stack, your customers have either more or less willingness for a cloud managed service. And I think the fourth option we saw was some of these exotic licensing models. And again, we felt like is that high risk of alienating your open-source community and really, most businesses want to entertain something like that – it’s kind of an exotic approach. So, we kind of looked at those four. And for us, and where we were in the kind of space of the market, we said, “You know what? Open core feels right to us.” But we did dabble with these different options, we did build early SaaS.

So, actually, for people who’ve been following HashiCorp for a long time, they might remember we had an Atlas product, which was sort of a hosted platform-as-a-service built around our products. We ended up sunsetting that when we decided to focus on enterprise, because it was misaligned to our target customer. So, we tried to SaaS, we actually sold about – in the early days – we sold support around open source, so we did some amount of support and services.
In some sense, we played with all of the different models except for the exotic licensing, but ultimately decided that open core made the most sense for us.

Pricing Strategy

Michael: Sometimes I joke with people that when you open a pizzeria, you know you’re going to sell by the slice or by the pie, and you kind of know what price, but for something as new as the cloud, all of our previous assumptions were hard to use. Like, per CPU. Well, you are spooling up instances dynamically. So, how did you figure out what was the right unit or what was the right sort of way to measure usage in your open-core platform??

Armon: Oh, man, there’s an underlying assumption that we’ve ever figured it out in there. I think pricing and packaging is such an interesting thing. Because there’s always trade-offs with it. No matter what metric you pick, users will find a way to sort of game it. It always gamifies in some way or another. I think it’s almost finding the least bad is how I think about it. They all have weird trade-offs.

I think with each of our products, we’ve sort of gone through multiple iterations of, is it licensed by the number of users, is it licensed by the number of applications, is it licensed by the number of resources under management. Like, CPUs might be a good example. I think we’ve licensed by the number of requests you make, like API request.

I think we’ve sort of played with all of these. Ultimately, I think, if we pull it back to sort of what are the philosophical goals, I think what we want to achieve is a few things: one is, you want a pricing model that scales with the value our customers are getting out of it. Meaning, I don’t want if my customer 10x-s their usage of it but my licensing stays flat. Otherwise, it’s not a fair exchange of value.

Two, you want the license estimation to be relatively straightforward for your customer. Meaning, when you’re going through an enterprise sales cycle, you don’t want them to have to guess, “Hey, how many API requests do you make within a 200-millisecond bucket on this time, on Tuesday, with your peak traffic??” That’s a very difficult thing for a customer to try and estimate in any meaningful way, to be able to have a sales conversation.

So, those kind of pricing metrics tend to be bad because they introduced a lot of friction to the deal, versus if you said, “Hey, how many users do you think you’re going to have on this?” “Or how many applications do you think would be using this?” That’s a much easier thing for the customer to actually go estimate.

I think once you start to say, okay, we want something that scales roughly linearly with the customers value they’re getting out of it, and we want it to be something that is reasonable for them to be able to guesstimate, as part of a sales cycle, and that they feel is a fair trade of value, those end up being kind of the guiding philosophy. And then, I think “per product” ends up being a slightly different answer for us just because we have a broad portfolio.

MPL License

Michael: I was looking at the Terraform, GitHub – I read the license. I saw that you, actually, personally checked in the license in 2014. And it’s a Mozilla public license 2.0, and it hasn’t changed since 2014. So, I’m wondering if you could share what are some of the reasons you chose that license and how’s it working out?

Armon: Yeah. It’s a great question, and we often get questions about it. So, in some sense, our goal was, we always wanted something super, super liberal rights. Our initial instinct was actually to use like the MIT or BSD licenses. Something that’s basically kind of a “do whatever you want, no warranty is attached.”

Back in 2013/14, we talked to our lawyers, we’re like, “Hey, we want something super open, something that no customer is going to have an issue adopting with.” Because they are going to feel like there’s some ickiness to the license. And we feel like BSD and MIT are the way to go. And the advice we got was, “Those are good licenses. Nobody has an issue with them. BUT, from a legal perspective, they’re viewed as a bit ambiguous.”

Meaning they’re not super clear on does this grant access to trademarks. For example, the Terraform name is trademark. Are we granting access to that trademark – yes or no? We have several patents around some of our products. Are we granting access to those patterns – yes or no?

So, they felt like MIT is a very good but maybe overvague. Where MPO is just as liberal, you can do whatever you want, but it’s slightly more explicit that it’s not granting you license to trademarks, or patents, or any of these other things. It’s just a slightly more explicit license but equally liberal. And so, we’re like, “Great! That fits our needs sort of perfectly.”

I think, in retrospect, the piece that’s still unclear about MPO is some of the community contribution. If you’re contributing code to what are the terms and conditions under which you’re doing it.

So, in the meantime, several years after 2014, we introduced a Contributor License Agreements – anyone who contributes code to any of the HashiCorp projects is required to sign a CLA. And the point of that is just to create that legal concept around, “Hey, you agree that if you’re contributing this code, you’re doing it under the NPL license to this project.” Because it’s not explicit enough, I guess, in the sort of existing NPL and existing workflow.

I think, actually, Apache2, in retrospect, is probably what we would have used just because it’s slightly more explicit. It has the contributor license agreement, a sort of like baked into it, and it’s a very, very well understood and well accepted license. So, we probably would have been slightly differently, but MPL has worked out fine for us.

New Products Are Open Source Too?

Michael: You’ve done your part for open source. No one can deny that. So, my question is, what about new products? Now that you’re launching new products, is there are sort of a discussion about whether or not to make these new products open source?

Armon: Yeah. I think obviously our quarterly products -Terraform, Vault, Nomad, Packer, etc. were all kind of — the era was kind of 2013 to 2015/16 is when we introduced the kind of core portfolio of six products. But I think, even if you look at our new products, the ones we introduced in 2020, Waypoint and Boundary been kind of the two, big new open-source projects, they followed in the same footsteps. They’re both MPL, they’re both open-source from day one, they’re both going to follow an open-core sort of trajectory in terms of how we monetize them.

And I think, for us, we talked about this in the S-1, there’s sort of this core flywheel of our business, which is really about sort of winning the practitioner heart and minds with open source. And there is the foundation of how we then build an ecosystem around the tooling, which, then, is how we go and win the enterprise customers.

I think that core motion hasn’t really changed for us, and it really starts an open source. There hasn’t really been a change in our strategy. And sort of in that sense, it’s kind of more of the same, even though our newer products are five, six years after our initial tranche of product.

When Does Open Source Make Sense?

Michael: So, let’s say entrepreneur walks up to you at a party and he says, “I’m working on this piece of software, should I open-source it?” What do you say?

Armon: “Oh, that’s a good question. I actually think the answer is, it depends. And I think what it depends on is, where do you sit in the value chain. And what I mean by that is, I think infrastructure and developer tooling in particular benefits quite a bit from open source.

Because I think that is an area where people want to be able to customize that you’re selling to a highly technical audience. If you think about the people who are the buyers and users of our tools, they’re highly technical, they are Dev teams themselves. You benefit from that effect because they want to be able to customize and contribute back, etc.

Now, when I look at some of these other projects, where we’re going to go creative, an alternative to whatever, Facebook or Instagram, and it’s going to be open source, your target user is my mom. Like, my mom is not going to contribute back to that project. She might be an end-user of it if you’re successful, but she’s not going to contribute. She doesn’t know what GitHub is.

In that sense, would you benefit at all from it being open-source? Maybe, to the extent there’s a community of people who want to work on your company for free and their spare time, sure. But I think in practice, the answer is no, probably no real benefit to that.

I think that it varies quite a bit on who is your customer, what’s the vertical, where do you sit in the value chain. I think the closer you get to developers as your end-user and your target audience, then I think the more you benefit from open source.

Governance?

Michael: Has HashiCorp ever considered moving to a more democratic governance framework? Right now, it seems like most PC back software companies that are achieving high growth have very little desire to give up any control over the product or the future of the product, but there is something to be said for having a governance process, with the ecosystem and the community sort of gets a say. Would that ever be considered?

Armon: Yeah, that’s a great question. I think we’ve considered, and certainly I think there’s a number of great foundations, whether it’s Apache or Linux Foundation or CN/CF, there’s a number of these larger kind of foundation vehicles that you could join. Practically speaking, we’ve never considered it. And I think it comes back to number of reasons. For us, it’s always been that we’ve wanted to kind of have tight control over the destiny of the projects. That’s always been super important to us. There’s always been a reluctance for us to kind of move away, if you will, from the benevolent dictator for life model that I think has served us relatively well.

Tao Of HashiCorp

Michael: I saw Tao of HashiCorp in your S-1, and I was wondering if it’s the first time that the word Tao has ever been used in S-1? And can you tell me a little bit what is the Tao of HashiCorp?

Armon: Sure. We published this document a long, long time ago. I think back in 2013 when we first started the company. And I think what we wanted to do was make really explicit what were the principles that we think about infrastructure management has.

Some of this probably sounds stupid in 2022, but we have to remember the state of DevOps tooling, as we call it today, was very different back in 2013. So, for us, it was a bit of a declarative statement of principles where we said, “Hey, we think everything should be driven by infrastructure as code, for example.” We think everything should be designed around the idea of sort of microservice architectures at the time.

It’s a bit more technical jargon around communicating sequential processes, but effectively, the idea of sort of network agent model with API driven interfaces. And so on and so forth. There’s a number of principles that we sort of outline in there, where immutability is actually a good example, where we talked about kind of immutability.

Today, a lot of these things seem almost obvious. You’re like, “Yeah, things like infrastructure as code obviously, and immutability.” In 2013, none of those things were obvious. Nobody did infrastructure as code. Like, people point and click on the Amazon console. Nobody did immutability.

This was the heyday of Chef, and Puppet, and CFEngine, and people ran config management in production. So, I think a lot of the principles of the time were very contrarian, but we wanted to be very upfront on, “Here’s our views on how infrastructure should be done well at scale, in a disciplined way.”

And by the way, these are the principles around which we’re building our products. So, in some sense, it was meant to be a design ethos for the products themselves. I think people often comment that even other very different products in our portfolio – they all have a common look/feel ethos, and that’s sort of not accidental. They’re all built around the same ethos that we sort of outlined.

Ecosystem

Michael: I’m interested in the ecosystem. I’ve seen for some open-source companies, like, take for example Automatic, the company behind WordPress, that the ecosystem really can be critical. Can you talk a little bit about how the ecosystems evolve and who are some of the most important ecosystem partners, and what open-source companies can do to sort of design ecosystem development into their business model?

Armon: I think actually first ecosystem is super important. I think you know going back to that kind of flywheel we talked about in the S-1, piece one was when the practitioner, piece two was, standardized the ecosystem. And I think every year, internally, when we articulate our company goals, those are our three North Stars. It’s when the practitioner standardized the ecosystem enabled the customer. And so, all of our goals actually derived from those three North Stars on an annual basis.

It’s something that we spent a lot of time thinking about. And I think it decomposes into number of different areas. One is, to your point, from a product architecture perspective, what can we do to encourage it. And I think something we were very deliberate on with our products is this notion of a core plus plug-in model.

If I take Terraform for example, there’s the Terraform core, which is the main engine that does the graph processing, the workflow, all that fun stuff. And then, we have a very well-defined plug-in model with an open-source SDK that allows anybody to basically create their own Terraform provider. And a few hundred lines of code, you can integrate it with pretty much any API you can think of. So, that plug-in model then enables any one of our community members, anyone of our technology partners to go create an integration with Terraform.

Same sort of a thing with Vault, it has a core engine, and then, it has this plug-in ecosystem that allows you to create a plug-in for authentication or plug-in for dynamic secret management, or database credential rotation, etc. And these are all well-defined plug-in interfaces.

So, that is a product architectural decision, where we want to make it simple to create these plug-ins, and kind of keep them a little bit arm’s length from the core, so that you can come in and write this without knowing how Terraform is. You don’t have to be an expert on the Terraform codebase to go write one of these plug-ins. Same with Vault.

Then, on the other side, very early in the company’s history, we invested in a technical alliances function. So, the goal of that team was to go and do exactly standardize the ecosystem. It was tied to that North Star, which is, “Hey, go talk to the critical technology partners, and encourage them, and help them to hold their hand on doing those technical integrations with our products and building that ecosystem around us.” So, that was a very deliberate focus of that team, and we still have a large technical alliances team that does that.

And the third part of your question is then, who are the folks that we really think about as influential. I mean, it goes without saying, the hyperscalers, given the space we are in, so we spent a lot of time with Amazon, Microsoft, Google, Alibaba Huawei, you know, the hyperscalers that you would expect.

And then, beyond that, it’s a very large ecosystem of probably 200, 300 technology partners, obviously not all of them equally important. But, you know, if you think about infrastructure as code, great, how do I have tight integration with all of the version control and CI vendors. Let’s get GitHub, GitLab, Circle CI, Atlassian, etc., who are the key people in that space. And then, for our runtime products, you care about observability.

Okay, so who are the people there? New Relic and Datadog, you know, AppDynamics, and so on and so forth, Splunk, Sumo Logic. I think in each of those categories, where we know our customers are going to want critical integrations, there’s probably the top three to five vendors that account for the majority of that market.

And so, you really want to go spend time with all of those vendors to make sure, great, no matter what product of ours you’re adopting, the observability integrations are already there, the authentication integrations are already there. The version control integrations are already there. You add all those things up, and you end up with a lot of partners that you spend time with.

Challenges For Open-Source Companies

Michael: We’re getting to the end, and I want to zoom out a little bit. What do you think are some of the biggest challenges facing open-source startups today?

Armon: I think one of the biggest challenges of the open-source landscape has shifted a lot. And what I mean by that is, when we started with HashiCorp there, the “incumbents”, if you will, were all proprietary commercial software vendors. And I think there’s a truism when people talk about startups, like the challenge of a startup is always, as a startup, you need to find distribution faster than the incumbent can copy your innovation. And that’s always been true. Because the incumbent, by definition, is going to have way larger distribution than you will. But you are innovating them on some dimension. Naturally, it starts going to be more agile. That’s always been the race.

I think when I look at early days of HashiCorp, the innovation for us was not just on the product. It was that hey, we can get a massive distribution advantage through open source by going direct to our end-users and getting that virality of sort of use. Obviously, there’s always a cat and mouse between startups and the incumbents. And I think the incumbents, to a large extent, have figured out that that asymmetry exists with open-source.

So, whether you’re competing with Microsoft, or VMware, or whoever it is that in your category is your incumbent, they, by and large, figured out that this asymmetry is this. And I think many of them have worked to neutralize that asymmetry. And whether that’s by them embracing open source in some sense. Take a look at the platinum sponsors of the CN/CF, you might notice something – none of them are startups, they’re all the incumbents of sort of the old world.

Because they’ve all figured out that they’re exposed to that sort of asymmetry, and so, how did they close some of those gaps. I do think it’s changed the game a little bit because I think that challenge is now how do you get that distributional advantage, without sort of allowing the incumbents to copy the innovation. I think that’s a real challenge. And I do think it requires a different level of creativity. And I think to a large extent, it’s about shifting a little bit of some of that two more of these cloud services. I look at folks like Databricks and like what are they doing really well.

Yes, it’s open source at its heart, but that’s really not their distribution channel. Their distribution is actually much more power through their ease of use of their SaaS and having sort of a freemium product LED growth model on top of the open source. And I think that’s very different than the HashiCorp approach, circa 2015.
I do think there’s this constant evolution and cat and mouse. And I do think, to a large extent, the incumbents have become aware of that asymmetry.

Advice For Entrepreneurs

Michael: So, personally, startups are an emotional rollercoaster, especially tech startups – do you have any closing advice for entrepreneurs who are just starting on that journey?

Armon: Oh, yeah. It is a roller-coaster is an understatement. Roller-coasters tend only to last a few minutes, these last a decade plus. It’s a hard question. I think the biggest thing is, make sure you’re truly passionate about the space, because there is going to be so many obstacles and so many downs. It’s not going to be an easy smooth ride. And I think what makes it the going possible is that you have to have a sort of a deep underlying passion for the problem space that you find yourself in.

I talk to a lot of founders, they’re in it because they think, “Hey, this is going to be a good space to make a quick buck in or something like that.”
And almost inevitably, they get burned when the going gets hard. Because they don’t actually care about the buck. So, I think if you aren’t truly passionate about it, it can be hard to make it all the way through the marathon. Because it is a marathon, it is not a sprint.

Closing

Michael: Armon, thank you so much for sharing all of this advice and wisdom, and congratulations on HashiCorp. It’s an unbelievable accomplishment. I can’t say congratulations enough, but thanks again for joining us.

Armon: My pleasure. And thank you for the kind words, Mike.

Michael: And thanks to the HashiCorp team for helping to schedule Armon for this episode. Cool graphics from Kamal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere.
We are going to publish two more episodes this year. I won’t announce the guest yet, but they’re really fantastic. And if you want to say hello, I’ll be attending the “All Things Open” conference at the very end of October in North Carolina. And I hope to see you there. So, until next time, thanks for listening.

Episode 55 – Miguel Valdés Faura, CEO and Co-Founder of Bonitasoft

Intro



Mike Schwartz: Hello and welcome to Open Source Underdogs. I’m your host, Mike Schwartz, and this is Episode 55, with Miguel Valdés Faura, CEO and Co-Founder of Bonitasoft.

Not every tech company follows the same trajectory to success. Hypergrowth is great if your market supports it, but the world of infrastructure software is diverse, and hypergrowth can subject your business to unreasonable risk.

To me, Bonitasoft was a reminder that a CEO’s responsibility can transcend shareholder value. While the primacy of shareholder value seems axiomatic in Silicon Valley, it’s worthwhile for entrepreneurs to weigh that risk. Miguel and his team did just that, and their success validates the idea that business models are not a one-size-fits-all proposition.

As a side note, as I was doing my research, I noticed that Miguel has interviews in Spanish, English and French. American CEOs are lucky to speak two languages, but three is pretty exceptional. Anyway, I hope you enjoy the interview. This was the last of 2020. So, without further ado, here we go.

Miguel, thank you so much for joining the podcast today.

BPM Market Overview

Miguel Valdés Faura: Thank you, Mike, for having me.

Mike Schwartz: So, although this is a business podcast, you’re a technical founder, and sometimes, it helps to have a high level of understanding of the market. Business Process Management, or BPM, it’s still an important way to think about how to apply technology, but the technology landscape has changed so much since 2001, I guess when you started the project, and even since 2011, when you started Bonitasoft. Why is BPM still a good way for companies to think about how to build applications?

Miguel Valdés Faura: Good question. So, it’s because companies – I like to say that it is all about processes, a ton of processes that are required to run a company, some that are more critical than others, but BPM technology has been here for a while to help companies, to rethink, re-invent and automate their processes, whatever, they are critical or not. Also, I think it is something that is here for a wider dimension, and of course, the market is evolving because also the needs of those processes are changing in organizations.

Project History

Mike Schwartz: So, the Bonita project itself started at the French National Institute for Research in Computer Science. The project was transferred to the Bull Group, and then, in 2009, you started BonitaSoft with Charles Souillard and Rodrigue Le Gall?

Miguel Valdés-Faura: Exactly.


Mike Schwartz: And also, over the years, how is the community grown? Is the Bull Group still involved, and are there other important contributors in the ecosystem?


Miguel Valdés Faura: BullGroup, which is now part of Atos, at the origin, is involved, but as a partner. It is one of those hundred employees, partners that we have – I’m talking about Consulting and System Integrators Partners that helps customers worldwide with the Bonita implementation, but nothing more, meaning that over the years, Bonita self has grown into an international community that goes beyond specific companies, but, also, having individuals working sometimes as freelance models, as part of the bigger companies.

And I think that’s one of the main achievements now. We have now a community of around 150,000 individuals working with Bonita, not all of them of course are contributing, it is only a small portion of this contributing code, but there is people participating in answering questions in the forum, or translating the products – there is a lot of activity in the Bonita community that is not relied only on one company.

Why No-Code Is No-Go?

Mike Schwartz: In an interview a few years back, you said that the no-code approach does not open the possibility for developers to write code that meets business needs. Can you expand on that? Don’t business people love drag-and-drop GUIs, to build BPM workflows?

Miguel Valdés-Faura: Yeah, a good one. So, probably, it was referring that with this new trend of local done, this new kind of developers, the thing some analysts were calling business developers, at some point, we were facing with people that are not skilled in development to build some complex applications, and at some point, they’re going to face some limitations. Of course, a lot of people like to build on applications, using drag-and-drop, as I mentioned, or visual tools, but when the application gets more complex, or when you need to customize a little bit more the application, at some point, developers need to be part of the game as well.

So, I’m not saying that it’s not useful to have business people participating in the development projects. I’m not saying that the local movement is not something that is real, I’m just saying that we need to find a balance between things that can be done graphically, and first that require code, and it’s about how those two different skill sets can collaborate, how business people or people without development skills, can also work on the same project with developers.

Probably, those two personas are not going to use the same thing.

Customer Profile

Mike Schwartz: Thousands of organizations use Bonitasoft, but switching to the business side a little bit, from a revenue perspective do you see the 80/20 rule, where 20% of your customers make up 80% of your revenues? And if so, what does that 20% segment look like, with regard to use cases or industry verticals?

Miguel Valdés-Faura: In terms of the verticals, of course, I think it’s not only something  -particularly Bonitasoft, all BPM vendors, you know, have a lot of traction in market that are highly competitive. So, for example, insurance, banking, telecommunications, because there is a lot of pressure to do better than the competition, because there is a lot of processes that are related about how you provide better services to your customers, and how are you going to retain those customers by providing good services.

So, those will be probably the main four sectors in which Bonitasoft is evolving and getting customers, and also, potentially the ones, in which other vendors are also evolving. In terms of the split or the size of the customers that we have, we have this idea from the very beginning to focus on medium and large organizations.

So, there are some BPM vendors that are focusing on smaller implementations, we are really focusing on complex implementations and meet large organizations. So, the majority of our customers, like 75% of our customers, will match that criteria. And the majority of the project implementation inside those projects are either core or critical to their business. We usually don’t start working with a customer in less critical business process, but this is part of our strategy. And, of course, our product is better suited for those complex implementation.

Value Proposition

Mike Schwartz: Kind of a basic question, but what would you say are the most important value propositions for your customers?


Miguel Valdés-Faura: First of all, we are selling a platform, not a product, so, what we want is like to bring together those two personas that I was referring in a previous question, so business people or less skilled people, in terms of technical skills, and how developers can work together. So, we have a platform, in which you have clearly separated the visual programming capabilities versus the coding capabilities. So, in a sense, we are taking the benefits of the majority of things that we see in an open-source project. So, extensibility, open architecture, which APIs, compatibility with other open-source technologies that are things that appeal to developers. And at the same time, we have an integrated platform, a unified platform, that is also providing visual capabilities to less technical people. And, also, this clear separation in which, depending on the skills that you have, you can use some of the capabilities of the platform, and depending of your skills, you can use some others – these are the things that make us different, and that people like about our solution.

Monetization

Mike Schwartz: Bonita project is open source, and Bonitasoft has a platform built around that – how exactly do you monetize?

Miguel Valdés Faura: So, we sell subscriptions – package additional capabilities to the open-source version, and also, some professional services. And those subscriptions, minimum is an annual subscription, are sold either for people that are deploying the Bonita platform on premise, or people that are using our cloud offering now. But, in two situations, we are basically adding capabilities on top of the open-source solution, like for example, monitoring capabilities and scalability. And we package that together with a professional support, SLAs, contractor warranties, as part of this subscription. Also, it’s a 100% of our probably related revenue is a recurring revenue.

Cloud Strategy

Mike Schwartz: Cloud hosting is really a great business model, and I heard you mention that you have a hosted offering. How has the hosted offering evolved over the years, and do you see that becoming sort of the most important way that you deliver the software? Would you say self-hosted is still going to be more important from a revenue standpoint?


Miguel Valdés Faura: Yeah, a good question. I think in our space, the BPM space, and particularly because of the nature of the projects that we target in our customers, as I was referring as core or critical, we still have a lot of people using the on-premise version, especially in banking insurance that are sectors that are still using a lot of on premise, or they are starting their cloud movement, using public clouds, but not really externalizing everything to SaaS solutions. So, on-premise is still really a big majority, but we have released our cloud service 18 months ago, and we already see a traction. So, there is more and more customers also embracing that new offering – I will say today is more like 80/20. We expect that this is going to change.

It took us a while to offer a Bonita Cloud version because we didn’t show a lot of demand previously. We, as I mentioned, we started seeing some companies that are more and more interested. We really believe that it’s going to be maximizing in the next years, but again, the on-premise is still the number one option today for our customers.

Prioritization Of R&D

Mike Schwartz: So, how do you prioritize your R&D effort, because you’re still contributing to the open-source project, but you are also building your commercial like extra features. And how do you prioritize R&D?

Miguel Valdés Faura: That’s a tricky one for every open-source company. Because you need to make also clear rules about what are the developments that are going to go open source versus the ones that are going to go commercial, and the same applies to the teams – do you have the same organization working on the two kind of features, do decide to have different organizations?

So, we have evolved over the years, but one thing hasn’t changed is that we have defined from the very beginning clear rules about what is open source and what is not. For example, we didn’t want our open-source version to be something that cannot be put into production, because that was not the essence for us, the essence for us as open source.

So, the open-source solution at Bonitasoft you can develop, and you can put it into production, however, for example, as soon as you’re talking about scaling – if you need to CCP, if you want to do clustering, those are the kind of things that, from the very beginning, have only been available in the commercial version.

Also, first of all, is about defining the rules, so, your development team knows what goes into one edition versus the other. Not only your development team, but also of course the community, the community using the open-source version and also your customers – it needs to be really clear. Secondly, over the years, we have evolved, also, in terms of how the development team is a structure, to be more focused on one product, one edition, meaning, one set of people for developers working, one part of the product that is either open source, or is commercial, which, of course, is a way simpler to manage from a management point of view.

Cloud Native Opportunity

Mike Schwartz: In the Cloud Native world, scaling is sort of table stakes, like Kubernetes out of the box is clustered, and my company Gluu, we’ve decided that we’re going to make scaling sort of part of the open-source, just because it seemed like it’s hard to get adoption in the Cloud Native world unless you support Kubernetes, and Kubernetes has clustering.

Do you see a similar trend in the BPM market? And are any challenges or opportunities around Kubernetes and the move to Cloud Native?


Miguel Valdés Faura: Even before Kubernetes, the move that we saw was the adoption of Docker. So, four years ago, we started to demand Docker super, as a way to use and deploy Bonita. So, that’s one of the first that we did. So, to certify a Docker image for people wanted to start their projects, it took us depending of the geography some time, we got that traction from the US, a little bit less in Europe in terms of adoption of the Docker image. Now, it’s a reality – there are more and more people using that. And, of course, those people are also asking now, “Okay, let’s combine that with Kubernetes.”

We have decided that Bonitasoft, that this is part of the kind of the capabilities that we can provide as part of our Cloud Edition. So, the elasticity capabilities that are offered to our Cloud customers is based on Kubernetes. And I think that the value to the customer is that we are able to manage that automatically for them.

This is something that we are at Bonitasoft proposing in our Cloud offering. But if someone wants to do it on premise, and they want integrate, the current Bonita on-premise version without the Kubernetes and manage Elasticity, they can do it.

But at Bonitasoft, we have a package to make it really simple for people who want to use the Cloud service.

Growth While Pivoting

Mike Schwartz: As you know, investors are super-focused on top-line growth. They want growth, growth, growth, but when there are major technology shifts, like from 2011 to today, seems like a different world. It’s hard enough to survive, let alone to grow a 100% per year. Can you talk about some of the challenges of achieving this high level of growth, especially if you have to pivot at the same time, like you probably did over the last couple of years?


Miguel Valdés Faura: A really good question. I mean, you know, it looks like hopefully things are changing, but when we started Bonitasoft off in 2009, and especially in the years that follows, looks like everyone needs to become a hyper-growth company. And of course, I really was trying to raise a lot of money, and we did it as well as Bonitasoft. And, of course, raising a lot of money means also at some point delivering really high growth. But things are changing, and I think that that’s okay, and that’s possible in some situations, it’s something you need to also be willing to do.

We wanted, at some point, growing the company that way at Bonitasoft, especially at the beginning, we decided to change. We decide to change because we wanted to build a more sustainable business, and of course, the level of research you take, if you are always following the hype- growth is a big risk. Because, of course, you are depending a lot of on money from investors, usually high-growth means high losses. So, you need to raise money. Of course, missing some of your targets can put the company at risk.

So, we decided five years ago to change, and embrace what we call a sustainable growth business model, in which profitability scheme for us, in which we try to grow as much as we can, if the company is profitable, and learn in environment in which people are enjoying their day-to-day work.

Now, we have to switch from one to the other, and I think that the pandemic that we are living these days is also reminding us that potentially that’s also a model that some other companies should consider..

Transition From Growth To Profitability

Mike Schwartz: That’s very interesting that you’re saying, “switch to high-growth as long as its profitable”, but how did you manage a relationship with your investors? Were they on board with that, or was there some friction around, saying, “We don’t want to accept this high level of risk?”


Miguel Valdés Faura: You mean, at the beginning, or when we decided to change to a more sustainable growth model?

Mike Schwartz: When you decided to change.

Miguel Valdés Faura: I think they were happy to see that after seven years of existence, we wanted to start looking to profitability. I think at some point that’s important for a company. And so, they were okay with that. And, then, of course we think that we have another kind of discussion with them because we are not asking any more money, the company is profitable for the last four years. So, then, do we need to deal with all the things like, okay, are we looking for an exit, are we looking to grow and do some acquisitions that we want to continue to grow the business organically – but, in any case, you are not forced to raise money which I think is good for us, and in some situations also good for investors.

Building The Sales Team

Mike Schwartz: So, it’s the technical founder one who’s been on the business side for a long time. Building a sales organization is really challenging – is there anything you’ve learned about building the sales team that you’d like to share with startup founders?


Miguel Valdés-Faura: Yes. It’s maybe because I’m also an engineer by training, but, of course, we did a lot of adjustments in the sales organizations over the years, and we’ve made a lot of mistakes and we’ve learned a couple of things. We made some great success, but you know, for the last four years, we are operating with sales methodology that probably you know this, it’s called Customer Centric Selling methodology, which is really focus on the value that you can bring to the customer, that is more focused on quality versus quantity, in which you do, not a lot of prospection, but you are really trying from a marketing perspective to have people really interested in having a discussion with you, and spending a little bit more time and trying to provide a solution that is, as I mentioned, to the problem.

So, then, you can surely acquire a new customer, but also make sure you can renew over the years. And this is one of the big things that we did. And we did it by having a mix in the sales team, people that are coming from different backgrounds, including engineering.

And I think that’s one of my first learning is that you can’t have people that have an engineering background that are doing exceptionally with that, and I think we’re seeing that with more and more companies.

Second, you need a methodology that is really focusing on providing value and delivering value to the customers. And this methodology needs to also be shared with marketing, and needs to be shared with the rest of the organization, including product teams know. And that has been a big change for us. Of course, we didn’t need that from one day to the other, but that move to this new methodology, having the right mix of people and focusing more on content and maturity of our leads than on quantity and prospection, has made a big difference for us.

Partner Strategy

Mike Schwartz: You mentioned that Atos was still a partner, and perhaps, there are other partners who are either bringing you business or you see as critical. But can you talk about like the role of like how the partner strategy has evolved over the years?


Miguel Valdés Faura: Today, we have three different kind of partners – we were talking about Atos, we have a category that we call Consultants and Systems Integrators Partners. As I mentioned, we have something like a hundred and plus of those partners, so, including CGI, including Atos, including Sopra, and then, other things that you in the U.S., you call it more boutique-like partners, or people that are more specialized in one particular sector. So, implementing projects in insurance or in banking. For example, in the U.S. people like Evoke, in Latin America people like Indra – this is one category. Those kind of partners are helping us either to identify new opportunities and also to do the implementation.

By the way, 62% of our new business is influenced by those consulting partners. Second category will be the technology partners. So, there’s no surprise here, this is about integration of our product with other products in a similar market. So, for example, we have those kind of partnerships with the UAiPath in the RPA space. We have this kind of partnership with a DocuSign. So, basically that means bi-directional integration between the two products. And I joined go-to-market, in which we think that the two products combined can bring more value to the customer.

And the third type of partners that we have are OEM Partners. So, it’s people or companies that are embedding our technology and reselling as part of their product. So, to name one that is more representative. Talend is doing that, Talend is that integration leader that is embedding Bonita as one of their offerings. So, those are the three kind of partners. And of course, this thing has been evolved, and has been over the years. So, we started with putting a lot of effort on Consulting and System Integrators Partners, and then we started to focus, in a second step, on more of the technology side of the story.

OEM Patnerships?

Mike Schwartz: You mentioned OEM partnership, which is interesting for open source, because I think that companies who want OEM can use the open source and become part of the ecosystem. What is the driver for a company to OEM in open-source product?

Miguel Valdés Faura: A good question. I think is that the nature of the technology that you are embedding, if you are embedding just Log4j for logging – that was, at least, used 15 years ago, – or Hibernate for persistence. Potentially, it’s the same done embedding, BPM engine or Workflow engine.

So, if you are embedding a solution, that is more like a project or a platform, that is in some way critical to the other solution that is embedding, potentially you’re going to look for, not only can I do it from a license perspective, but also, potentially, you are going to contact the other company to do a partnership. So, that’s what’s happening a lot in our ecosystem – embedding a VPN engine or embedding the whole platform, embedding a workflow solution is something that’s potentially going to be used for mission-critical things.

So, if that is the case, even if the license allows you to do it, potentially, you are going to also look for some help from the company that is building that. And of course, then, it could be also an issue with the license. You know, some of the licenses, for example, the GPL license are not allowed to embed directly without having an OEM equipment in place or changing the license. So, it could be either a license issue, or it could be that you need some helping if something goes wrong.

Licensing

Mike Schwartz: I normally don’t ask about license because I’ve actually been thinking about doing a whole another podcast, or maybe in a season or something, just on licensing, because it’s a complex topic.

Miguel Valdés Faura: Yeah.

Mike Schwartz: And, of course, Bonitasoft’s project’s been around for a long time, but is it GPL license – can you just talk for a second about the open-source license that you’re using, and maybe why?

Miguel Valdés Faura: The open-source project is really under the GPL license, and it’s more historical reasons, this is how we started the project. You know, at that time, it was the time when MySQL was – those kind of projects were appearing, it was the time of Enterprise middleware – so, we kept that license because that was also all discussions around open-core business model. And we didn’t change the scene that, for example, we are now also launching new ones, new products in which, we are also moving to some other license like Apache or MIT. But we kept, for the Bonita project, the GPL license because this is the one that get everything started.

Mike Schwartz: It sounds like the less permissive license actually has benefited you. But I think there’s sort of a knee-jerk reaction or policy among entrepreneurs these days to use permissive license, like MIT or patchy, but it sounds like GPL actually helped you in this case.

Miguel Valdés-Faura: Yeah, it kind of helped, for example, we’re talking about the OEM, it can help the OEM space, some of the people are going to see that there are some restrictions, and then, of course, there is this debate about, okay, but if I’m burying a GPL library, it’s going to be contaminating my project, but usually when you have that issue is because the project that you are building is usually something that you want to follow the open source, you want to commercialize something, just by liberating all those people work in open source, so, yeah, as you mentioned it, it’s always a complex discussion.

But, yeah, I think there are some benefits of using GPL, there are potentially some drawbacks depending of what do you want to build with that license – I think it depends. So, it is not magical rollover for what is the best license to use in your next project.

Keys To Growth In 2021

Mike Schwartz: So, there’s a lot going on today. We have the pandemic, moved to Cloud Native, changes in paradigms, like continuous delivery. What do you think are the keys to growth in the next few years?

Miguel Valdés Faura: I think nobody knows. I think we need to be humble, especially with everything and all those things that are going on, that are going on these days. But you know what, I will be back to my – what I was talking about the sustainable growth. I think that more than ever, being in a business, running a business in which you know that you are profitable, that you are of course trying to maximize, and you are ambitious to maximize the growth, if you are still profitable, having a strong customer base that this renewing year after year is what makes a big difference, especially when there are some situations that they want to do, are facing now.

Because, of course, if you don’t have that, and for some reason, you just stop signing new customers, or signing the new customer database that you were signing before. If you have a strong customer base, you’re going to suffer more than others. So, I will be back to that concept of sustainable growth because I think it’s what makes the company less risky, more sustainable in the long run.

Advice For Entrepreneurs

Mike Schwartz: You know, startups are roller-coasters. I personally don’t recommend starting a company, especially a tech company, to anyone who’d asked me, but for those people crazy enough to dive into entrepreneurship – do you have any advice for new entrepreneurs who are launching a business around open-source product?

Miguel Valdés Faura: I will have one. It’s obvious that I think it is good that we remember that from time to time, which is, there are no two companies that are alike, so, the same applies to founders. Don’t pretend to be somebody else. Of course, listen and learn from others in your ecosystem, but be yourself. And if you create a company, as you mentioned, if you are crazy enough to create the company, try to be surrounded by people that share the culture that you have in mind, the strategy that you have in mind. Don’t pretend to be a CEO that you are not. And that’s – I go back to – not all the companies need to be the same, not all the companies need to be unicorn, not all the companies need to follow the same business model, but you need to be really comfortable about the choices that you make, otherwise, it is going to be even harder than you know it simple journey.

Closing

Mike Schwartz: It’s 55 podcast. I always ask that question at the end – no one’s actually given that answer yet, but I have to say I agree with that a100%. So, thank you for being the 55th guest, and best of luck this year. And thank you so much for being on the podcast, Miguel.

Miguel Valdés Faura: Thank you very much, Mike, for inviting me. It was a real pleasure.

Mike Schwartz: Special thanks to the Bonitsoft team for helping us to schedule the interview. Editing by Ines Cetenji. Transcription by Marina Andjelkovic. Cool graphics from Kemal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere.

This is the last episode of 2020. Next year, I’ll keep going, although probably at a somewhat slower rate. If you have any ideas for the direction the podcast should go in 2021, I’d love to hear your feedback. You can contact me on the website opensourceunderdogs.com. Happy holidays, founders! Hang in there, and keep an eye out for new Season 4 episodes after the New Year.


Episode 54: Justin Borgman, CEO of Starburst, the Company Behind the Presto Project

Intro

Mike: Hello, and welcome to Open Source Underdogs. I’m your host Mike Schwartz, and this is the episode 54, with Justin Borgman, Chairman, CEO, and Co-Founder of Starburst, the company behind the Presto Data Access Project.

Before we get started, I have a quick request – we all want to help open-source founders and startups. I make the podcast, but I need your help to get the word out, so tell your friends, post on LinkedIn, tweet out a link, post on Hacker News, or follow me and share one of my posts on LinkedIn, whatever you think makes sense, go for it.

One of the themes of Machiavelli’s the Prince is Virtu e Fortunavirtu meaning excellence in your domain, and fortuna meaning luck, whether good or bad. I really like how the story of Starburst exemplifies this 500-year-old insight.


Justin has a ton of domain virtu. He has deep technical knowledge, but he’s also on the lookout to harness fortuna. He’s one of the few podcast guests to acknowledge it. And Starburst earns its name because it’s one of the most stellar open-source business success stories I’ve heard in the last few years.
There’s so many great insights in this episode, a lot to think about. So, without further ado, let’s get on with the interview.

What Is Presto?

Mike: Justin, thanks for joining the podcast today.

Justin: Hey, Mike, super glad to be with you.

Mike: Before we dive into the business stuff, I find it’s helpful to talk a little bit about the technology. Can you start by giving a brief history of the Presto project? What it’s good at, and how the community coalesced around it?

Justin: It was really back in 2012 for developers at Facebook, Martin, Dain, David, and Eric came together to create a new infrastructure project that would be a faster way of querying data at Facebook. Facebook, of course, collects massive amounts of data, hundreds of petabytes worth of data , and needed a faster alternative to a prior project that they also developed and they called Hive.

Hive was a SQL engine for Hadoop, and it just wasn’t fast enough. So, Presto was created to be a faster means of accessing that data. But it has one really important differentiation in addition to the speed, which is the ability to access data anywhere. So, it’s like a database without storage – that’s kind of one way to think about it.

So, it looks at storage in other systems, which could be Hadoop, it could be S3 and AWS, it could be a traditional database, like Oracle, or Teradata, or Snowflake. And regardless of where that data lives, Presto can reach it, query it, and deliver SQL-based analytics.

So, that’s kind of what makes it special, is the ability to access the data everywhere. And that’s gained particular momentum, I would say more recently, as many large enterprises have data silo problems, where they have data in a bunch of different databases, and are now perhaps moving to the Cloud in some fashion.

Mike: And if I’m not mistaken, high concurrency is one of the areas that make sort of this data access plain different?

Justin: Yes, exactly, it’s very fast, and can support high concurrency. And in a lot of ways, this technology was sort of, I like to say built in reverse, in the sense that it was tested at ridiculous scale from day one. You know, very often, when you start something new, you don’t really know how it’ll work at scale until you get people using it. But because it was really born out of the internet companies, Facebook, and Uber, Airbnb, and Netflix were all early adopters to use the technology, it was really tested, and at scale, and as a result delivers great performance and concurrency.

Origin Story

Mike: Starburst is not your first company, you are part of a team at the company called Hadapt that’s sold to Teradata in about three and a half years, I think.

Justin: Yep.

Mike: How did that experience lead you to Presto?

Justin: In a lot of ways, this is really a continuation of that journey that began 10 years ago. So, that was 2010 that I started Hadapt. Hadapt was a spin-out actually from Yale University and the computer science department – there’s some research called HadoopDB, which was pretty pioneering research at the time, in terms of thinking about Hadoop as a data warehousing solution, and being able to deliver fast SQL analytics on top of Hadoop.

So, we spun that out, raised Venture Capital, built that business over nearly four years, as you mentioned, and then sold it to Teradata. We had ups and downs, definitely lessons learned through that experience. And I think, really, my discovery of Presto after arriving at Teradata in 2014 was kind of an exciting opportunity to reimagine the strategy that we had with Hadapt.

So, Hadapt was the SQL engine for Hadoop, Presto is a SQL engine for anything essentially, allows you to access data anywhere.it was an opportunity to basically take all the lessons learned from the first experience and start to apply them over again.

It was actually my team from Hadapt that ended up contributing a tremendous amount of software to Presto, and working with the guys at Facebook, who created it to really make it an enterprise-grade piece of technology. And I think, as we started to see Presto get more and more capable, and see more and more people use it, that was what created the idea in our head that maybe there was a business to be formed around this.

Community Engagement

Mike: It’s a really interesting opportunity, and I can’t actually think of another example like it, but when I’m talking about open source, I sometimes talk about three types of open-source companies. One would be volunteer, where a bunch of guys or girls get together and write some piece of software that they love, but not necessarily for a business.

And then, I talk about corporate open source, where there’s some piece of software, where a company funds it, but it’s not their core business, but then, they realize that makes sense for them to collaborate like Kubernetes, let’s say ,and Google, and these pure-play, open-source companies, where the company behind it is developing it, and they’re the main contributors.


And so, lots of great open-source projects come out of this corporate open-source area, the podcast that is mostly focused on pure-play because they were trying to help entrepreneurs and founders start open source, use open source as part of their business model. But you’ve sort of, like, created a very interesting situation, where you have a mix of corporate and pure-play because you’re benefiting from, not just the community, but, really, Facebook is a big contributor to the project to — I heard almost 50/50. So, how’s that really evolved, and how do you continue to encourage this very symbiotic relationship?


Justin: You’re right. Preston has a very interesting history to it, an interesting journey. It started as a small project at Facebook. When we got involved at Teradata, we were able to apply a few million dollars a year of R&D budget into advancing that as well. And then, of course, you’ve got a few other companies contributing also along the way.

And, as a result, all of that kind of accelerates the development of the project. And I think that maybe what’s most unique here is not only that Facebook created great infrastructure software as a byproduct of their business – they’ve certainly done that before – but rather that there was kind of a commercial partner very early on, and myself, and my team at Teradata thinking about the commercial applications of this.

So, you know, back in 2014, Presto was still in its early days, Facebook wasn’t trying to monetize it obviously, that’s not their business, but we were already thinking about how this could be used by Fortune 500 customers, and what difference this could make to their business. And I think that led to its very enterprise-applicable evolution, and set us up really well to eventually commercialize this in 2017, when we left Teradata, the creators of Presto joined us from Facebook. And we went off on our way to build this business.

Idea Incubation

Mike: So, you were working on Presto while you’re at Teradata. And did Teradata ask for any equity, or how did that work when you told Teradata, “We want to start this company basically working at Teradata? Like, what was that like?

Justin: Yeah, well, what was interesting about that – and I guess just to set the context, I think Teradata, from 2014, when they acquired my company through to probably today, has gone through various iterations of kind of rethinking their overall strategy, in terms of how they evolved into this next generation of sort of Big Data platforms. Because they had great success in the ‘80s, ‘90s, and early 2000s, as this kind of monolithic data warehouse, where you would ingest everything and store it in one place.

But obviously that became very expensive over time. And the appliance model, hardware and software combined, wasn’t necessarily set up for this future as people move to the cloud. So, they’ve gone through a lot of iterations. And it was really in that iterative process, where they weren’t really clear where they wanted to go, that they actually felt like Presto is maybe a distraction for them.

So, that actually created the opportunity, I think, for us, to say, well, we think it’s a little more than a distraction. And, you know, we’d be happy to sort of take that off your hands and work on this together.

So, it was a very amicable split – we remain partners, we’re still partners today, where we work together on some customer accounts, the technologies work together, we can access data in Teradata, for example, from Presto. So, that partnership remains. But it was one that I think for them, they viewed us as sort of taking Presto off their hands because there were maybe close to a dozen companies within their customer base that were using Presto. So, we were able to deliver really first-class support to those customers, you know, not provide any interruption there, even as we left and formed this new business. So, they don’t own equity, it’s purely a partnership.

Identifying Opportunity

Mike: It’s just amazing like how you deal your business, is you got a huge company Facebook to help you grade and test this infrastructure. You got to do R&D in Teradata, and then you started the business with customers – it doesn’t get any better than that really.

Justin: Now, you’re absolutely right. And believe me, the good fortune is certainly not lost on me. You know, advice I give to entrepreneurs of any type, not just open-source entrepreneurs, is to just have your eyes open to opportunity. I think it passes us all by all the time, and very often we miss it. And I think seeing it, and then, you know, running and jumping on it, it certainly has been beneficial in my career. I’m even going back to my first company and spinning out technology from Yale, which you could argue was the great benefit of various government research grants, funding that research in the first place. So, keeping the eyes open and seeing an application for where it could become a business.

When To Raise Money

Mike: So, initially, you didn’t have to raise money because you had some customers that came that provided some runway, but you did raise a series A, and I guess, October 2018, so, pretty recently. So, what was in the decision process to say, “Okay, now capital is going to help us.”, like what were some of the benchmarks that you reached, that helped you say, “Now is the time we should do that.”?

Justin: So, that’s exactly right. We started without raising any capital. That allowed us to build a profitable cash-flow positive business over those first two years of operating, which I think, by the way, as an aside, gave us a lot of opportunity to be patient and sort of think through exactly what we wanted our go-to-market strategy to be, what kind of strategy we wanted to take around monetization.

And we didn’t have the pressure of investors necessarily breathing down our neck, which I think many, many entrepreneurs have in those early days. So, I think it was a great way to start a business, what forced us to change and actually consider taking capital was really a realization that the market opportunity was bigger than we felt like we could actually satisfy growing at purely an organic rate.

So, we took that series A really as a growth round, you know, even though it’s called the series A, I think it’s a little bit misleading, because it’s probably more like a series B for most companies in that. Not only was it a large amount of money 22 million in that first round, but it was really deployed towards expansion and rapidly growing the business. Less so about proving product/market fit, which is more typical in a series A.

As you said, we did a series B shortly thereafter, which was probably more like a series C, adding another 42 million. So, we’ve gone from raising nothing to now 64 million. And really I think that was all made possible by really building the fundamentals first. Making sure you have that product/market fit sorted out, and then, you know, applying fuel to the fire to expand.

Revenues Pre-Investment

Mike: What was the revenues when you raised the series A?

Justin: Yeah, well, if it was 12 months looking forward, I would say it was already looking north of $10M at that point. So, that allowed us to really take the funding and apply it to, again, expansion rather than kind of sorting out the basic product details.

Mike: And what year did you actually start the company?

Justin: 2017.

Mike: That’s pretty amazing – two years to go to $10M. It’s pretty stellar.

Justin: Thank you. I mean, again, I think a big advantage here was that, in some ways, this was like building the same company over again – I mean, there are a lot of differences between this and my first, but they’re also enough similarities, just in terms of the types of customers that we sell to, the types of use cases, the types of problems that they’re trying to solve. So, I think that historical knowledge was advantageous for us to just move a little bit faster this time around than we did that the first time.

Balancing R&D Investment

Mike: Okay, switching gears a little bit into more basic business stuff. You mentioned in one of your previous interviews that I listened to, that Starburst is basically pursuing an open-core strategy. So, performance, robustness, security patches that goes into open source, things like connectors, security, ease of use, I guess GUI deployment stuff, goes into the core. One of the questions that I’ve sort of wonder about is, how do you decide how to prioritize R&D in open source versus the enterprise features when you go the open-core route?

Justin: Yeah, I mean, I think that’s the key question. So, it makes sense why you’re asking it, and I think it has to be on the mind of every open-source entrepreneur. And it’s a delicate balance because, on the one hand, you want to make the open-source project as useful as possible to get widespread adoption. Because really that’s your lead generation vehicle – I think that’s the way to think about it.

A lot of people say open source is really just another form of a freemium business model. There’s a free component, and that just happens to be open source in an open-source model. And then, how do you kind of upsell to the Enterprise version. So, for us, I think the logic was, what are the reasons why people use Presto anyways in the first place.

And we think performance is a core element to that. So, we wanted to make sure that performance is always great, right out of the box, with the first experience of it, including the open-source version. So, that’s why a ton of work goes into open-source around performance enhancement, scalability enhancements, those kinds of things.

And then, we think about, well, what do people in enterprises, who are willing to pay for this stuff, what do they want. And that’s where it is, things like security features, which are just essential for any large, mature enterprise things, like role-based access control, data masking, if you’ve got social security numbers or credit card numbers, being able to mask digits appropriately, having audit logs for querying.

And then, because Presto access is all these different types of data sources, it also made logical sense that if you’re going to access a database like Oracle, or Teradata, or IBM, all of which are very expensive in their own right, well then, a customer, probably, is willing to pay for enhanced connectors to get faster throughput to those systems.

So, that was kind of the logic was trying to like think through what are the enterprise features that someone is willing to pay a premium for, versus what just produces an out-of-the-box great experience. Because I think so much about open source is really people doing their own self-evaluations of the technology. So, self POCs, if you will, so, you want to make sure that’s great, because you can’t control that. You may not even know who downloaded it in the first place. So, that’s where you really want to put I think a lot of energy into the open-source project. And then, it’s as more of those production features that are important to the larger enterprises, where those I think you can hold back.

Why Not 100% Open Source?

Mike: I interviewed Mike Olson from Cloudera, you might know him.

Justin: I do, oh, yeah.

Mike: He was one of my first guest, and he gave a very similar comment to what you were just saying. And he was quite emphatic about it. And yet, Cloudera recently switched to a 100% open-source strategy. And other open-source companies have also, for example, Chef, and of course some of the older, Linux distributions are, RedHat and SUSE are all open source.

And so, one of the things I’ve been wondering myself is, you can use the open-core strategy. It makes perfect sense I think to business people, but I also wonder, this license is paying for the right to use the software. Do you think that customers are actually paying for the right to use, or they’re paying for the engagement with your organization? And do you think, if you made it all open source, it would actually negatively affect your revenues, or customers would still want to engage with Starburst a company?


Justin: I think I can speak from experience here, because part of what’s interesting about our history is that we’ve kind of evolved through the various open-source business models in our brief history. So, when we first started the company, we didn’t have any proprietary IP, so we naturally just sold support contract. So, the early customers that we started with were just support contracts.

I think the challenge that we quickly identified is that support alone is not the most compelling value proposition. It is to some, I’m not saying it’s not, but it’s not a sufficiently compelling I think to win over a broad set of customers.

I think that’s where the open-core model, at least for us, really created an inflection in the business, where, you know, now we had a real tangible reason. And, by the way, for what it’s worth, I think we learn this actually from our own prospects, that those who are actually huge fans of Presto, who are huge fans of us even, who were champions of what we’re doing, but couldn’t quite get the purchase across the line in those early days and that first year of our operation, because they couldn’t justify or explain to their boss why one would have to pay for something that was free essentially. And that was the tricky conversation was like, “Well, you get this for free, why would you pay for it?” Like, “We don’t need support, you guys are smart, you can support this, right?” And those are the kinds of conversations that can take place. So, I think that’s where the open-core model is really helpful to the business.

Monetization Strategy

Mike: You’re selling a product that’s almost like a data access product, like I call the Presto Interface, and it connects two back-end databases. How do you price an interface, like what are the buckets – I don’t need to know the price but I’m just wondering like, how do you land and expand, and how do you set up the model, so that it’s easy enough for customers to understand, and you can charge enterprise software rates for it?

Justin: The way that we monetize this is based on CPU consumption. Technically, we actually anchor on Virtual CPU consumption because so many of our customers deploy in Cloud environments. So, that’s the underlying metric, and the reason that’s a good proxy for us is because basically Presto is a technology that scales out super effectively, and is leveraging compute-intensively to execute the query.

So, it’s basically, like, the more queries you have, the more data you’re accessing, the more complexity of the workload, and the more users who are hitting the system you talked about, the strong concurrency that Presto provides. Those are kind of the dimensions that drive CPU consumption up, and we just monetize with that. It’s a straightforward metric I think that customers easily understand, and seems to work for us.

Optionality

Mike: In one of your previous talks I listened to, you talked about optionality, and how you recommended basically that optionality essentially drives freedom – how does Presto help you get that optionality?

Justin: Presto creates optionality by virtue of being disconnected from storage, is essentially not having its own storage layer. I used the analogy in the beginning that we’re like a database without storage. The other way I put it for people who are familiar with data warehousing is, we provide data warehousing analytics without the data warehouse. That’s another way to think about it.

So, because of that, it basically allows you to think about Presto as an abstraction layer, above all the data sources that you already have. And you can kind of skip the complex and time-consuming task of having to move data around, create copies of data, ETL it, extract it, transform it, and load it into another system, instead you can just do that at query time, and access that data, and get your results.

So, that gives you a lot of flexibility, and I think one of the ways we’ve seen that play out is, we have a lot of customers that have a classic data warehouse, maybe it’s Teradata or Oracle. And then, they’ve got some kind of a data-lake strategy, and maybe that’s either Hadoop on-prem, or maybe it’s S3, or some Cloud-object storage.

And the first step might be to use Presto to just join tables between these two systems. You’ve got some kind of user behavior logs in your data lake, and you’ve got billing data in your classic data warehouse, and you want to be able to correlate the behavior with the billing, let’s say. That would be a very common use case for us. You can do that with a simple query and Presto.

Now, what that allows you to do then, as a second step, is, essentially, hide from your own end-users, be them internal analyst, data scientist, or even customers. Where the data actually lives, they don’t need to know that they need to go to the data warehouse to get the billing data, and they need to go to the data lake to get the user behavior – they’re just submitting a query, and they don’t know where the data lives anymore.

And by doing that, you’re able to actually decouple your end-user from where the data is stored and give the architects in the organization the ability to now decide, based on cost or performance, where that data should actually live. So, you don’t need to pay Oracle or Teradata tremendous amounts of money to store your data anymore. That is, of course, the most expensive storage you’re going to find.

You could instead choose object storage, like Ceph from RedHat, or there’s a company on the West Coast called MinIO, which creates S3-compatible object storage. And that’s very inexpensive, relatively speaking. And you can deploy all of your data, or start to migrate your data into this lower-cost storage, and still be able to access it, while your end-users are none the wiser to where the data lives – they’re just getting their results. So, I think that’s where you kind of get to create this optionality and be flexible about where you put your data over time.

Mike: In addition to the technical level, I always think about optionality as, does the open-source license itself also lead, or open-source infrastructure in general, also lead to more optionality and freedom?

Justin: For sure. I mean, I think the notion of not having vendor lock-in is really important to customers. Increasingly so, I think they’ve been burned over decades of very expensive technology that becomes legacy technology, and then, their stock and the pricing goes up. And they don’t feel like they have much ability to resolve that. And I think the open-source license in and of itself gives customers a lot of comfort, in knowing that, you know, a worst-case scenario, they can always roll this themselves, with the open source. But also, Presto is able to read open data formats, which is also great. Because I think data lock-in is probably the worst kind of vendor lock-in.

And in a traditional database system, once the data is loaded into the database, it’s kind of not easy to get access to or get the data out, without continuing to pay for that database system. But if you’re using open data formats, which we’d really pioneered during the Hadoop era, these are like ORC or Parquet, if you’re familiar with those file formats, you can store them anywhere and query them with a multitude of tools. You could use Spark to train machine-learning models, working off the same Parquet files that you’re querying via SQL for Presto. And I think that gives customers a lot of flexibility as well.

Open Source V. Commercial Market Size

Mike: I read a lot of articles about how enterprises are really moving towards open source, certainly when you look at the large consumer-facing services, like you mentioned, Netflix, Facebook, etc., they’re building a lot on open source. Then, you look at the size of the market, and you see that, actually, from a market percentage of open-source software is still only a tiny amount – is the move to open source really real, or is it more hype than reality?

Justin: When you say the market is small, do you mean measured in dollars, or what’s the metric there?

Mike: Dollar, yes.

Justin: Yep, makes sense. And that’s the key piece. I think it’s probably super widely used, but the percentage of open source that actually gets monetized is relatively small. And I think that’s what’s translating to the overall dollar amount, seeming small, relative, to the proprietary solution. I think if you measured in terms of impact to businesses and organizations, I think it’s actually probably the reverse actually, where you might have more open-source software having bigger impact than the proprietary.

But, of course, the challenge – and I suppose this is the purpose of your podcast – is figuring out how to monetize that effectively, so that you can build a successful business, while having that broad impact that open source provides. And I do think that, as vendors, we’ve gotten smarter over the years about how to do that.

I mean, the way I think about open-source business models over history is that it started with the sort of pure-play support model, just offering support, nothing proprietary. I think kind of Generation 2 was the open-core model that we’ve spent time talking about. You know, Cloudera popularized that, as did many other companies. And I think Generation 3, which is actually where we’re moving as well as a company, is cloud-hosted, SaaS offerings.

And, basically, being able to make part of the value proposition, the simplicity of the solution that you can deliver as a SaaS, and I think data bricks is a great example of that. So, I think that’s kind of the next frontier. And I think, as more and more open-source companies move in that direction, I think they’ll probably have better success in monetizing that background usage of the open-source. Because, there’s so much you can control now from a SaaS perspective to really enhance the experience, that is just easier for customers to use your SaaS solution, rather than having to maintain it themselves.

Starburst Cloud Strategy

Mike: I normally ask companies if they’re developing a SaaS offering. And I think that there are some companies where it’s been really successful like MongoDB, Eli Horowitz from MongoDB is emphatic that cloud is the best business model and everyone should be doing cloud. In doing the 50+ podcast, I found that the results have been mixed, where sometimes companies find that it’s a good way to reduce the try by fly time, where the cloud offering is a good introduction, but then the revenues are mostly derived from the enterprise, like self-hosted version.

And it takes a lot of effort to actually — it’s almost like a whole new product, like you’re building a software platform, a great software platform, and then, building the SaaS is almost like a totally new product in different business endeavor. What’s Presto done in this area? Are you working on it? And do you have any thoughts about how that experience is going, sort of making a cloud offering out of the software?

Justin: We definitely are working on it, and we have been actually for quite some time. And it is hard work. I think there’s no doubt about it, but I do think that some recent innovations around Kubernetes actually make this easier than it maybe was a few years ago. Because Kubernetes can kind of create a uniform, almost like operating system, if you will, that you can deploy your software within, and therefore, sort of create the software once, rather than having to have all these different kind of custom versions for different types of deployments.

I think that’s a game-changer. It’s certainly something we’re betting heavily on, as we approached that by trying to create the same experience, regardless of where customers deploy.

Single-Tenant V. Multi-Tenant SaaS

Mike: Most of the old cloud services were multi-tenant, but, are you thinking, like with Kubernetes, we could maybe build a single-tenant and deliver sort of like, “We’ll host it for you, you’ll host it.”, but it’s going to be sort of the same thing?

Justin: That’s exactly right, yeah. You know, I don’t want to give away too much of our strategy just yet because we haven’t released the cloud product yet. But I think those are really important concepts that you highlighted there, that we’re very interested in.

Building A Sales Team

Mike: So, something you must have done a really good job at is building the sales organization, because $10M in sales hasn’t happened by accident. And I think sometimes founders underestimate how difficult it is to build a sales and marketing organization – did you have any thoughts or advice you could share on, like how that went for you, like, how you pulled it off, like how do you do it?

Justin: Yeah. I think the first step I would say is trying to understand yourself as the entrepreneur – what the sales process looks like, like, what are customers buying, how do they understand the value proposition. And I’m a big believer in entrepreneurs selling the first few customers themselves. I think you learn so much, even from a product management perspective of what you need. You get to experience what your sales reps will experience when you start to scale up. So, I’m a huge advocate of that.

The second thing I would say is find a great sales leader. Because you know there are folks out there who have done this many times before, and know what it takes to sort of scale up a sales organization. And, certainly, that was impactful for us in finding our VP of sales, who’s done a great job of really scaling up that organization quickly.

Team

Mike: One question I had was, the pandemic has changed things were much more remote –  were you remote before the pandemic, and what’s your plan for growing the team in the next couple of years?

Justin: We were not entirely remote, but we did have some level of distributed nature to our team. Before the pandemic, we had major teams in Boston, the Bay Area, and then, actually Warsaw Poland as well, as an important development center for us. So, we kind of had to work across these three geographies, which are obviously spread out by 9 hours of time zones. And I think that gave us maybe a head start on the pandemic. But to be perfectly frank, I mean, I would much rather go back to actually having an office, and being able to interact on a one-on-one basis personally, with so many of these people.

Because I think what’s been weird for us is, we have scaled so quickly this year that I have not met probably half of our employees at this point, which is just a weird thing, to have grown the company so much. And the only interactions I’ve had have been over a Zoom call. So, that part I miss. I do think we’re all trying to make the best out of it, of course. And I think good best practices are sort of documenting everything, having frequent all-hands meetings, where you get everybody together, but there’s still no real substitute I think for one-on-one interaction.

Founder Advice

Mike: The last question, any advice for new entrepreneurs who are launching a business, and they want to use open-source software development as part of their business strategy?

Justin: My advice would be to think early about that key question that you asked earlier in the podcast about what your monetization strategy is going to be, and on along what metrics are you going to, or what criteria I should say, are you going to be separating the enterprise value proposition from what you give for free, and I think kind of have a strategy early on and stick to it. Because I think that will just make the decision-making process so much easier for you as you go along. You won’t have to debate each and every feature that you come up with – you’ll just sort of know because it will fall into a framework. That would be my piece of advice.

Close

Mike: Justin, thank you so much for sharing all this knowledge and experience with us.

Justin: Thank you, Mike. This was fun, and it was great meeting you.

Mike: Thanks to the Starburst team for reaching out and coordinating the podcast. Audio editing by Ines Cetenji, transcription and episode website by Marina Andjelkovic. Cool graphics by Kemal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere.

Next time, we’re joined by Miguel Valdes Faura, CEO and Co-Founder of Bonitasoft, a global provider of BPM, low-code, and digital transformation solutions.

Until next time, stay safe, and thanks for listening.