Podcast

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 56 – Connecting Web3 Blockchains, Federico Kunze Küllmer, Co-Founder of EVMOS

Intro

Mike Schwartz: Federico, welcome to the podcast!

Federico Kunze Küllmer: Hey, Mike, thanks for having me today!

Background

Mike Schwartz: Before we dive into Evmos, tell us a little bit about your journey how’d you get here?

Federico Kunze Küllmer: So, I started in Computer Science and Industrial Engineering in Chile. I did a semester abroad at UC Berkeley where I joined this student organization called Blockchain on Berkeley, and that’s where my journey on the blockchain ecosystem but also in the open-source ecosystem started.

After I graduated, I started working on numerous open-source projects like Tendermint, Cosmos SDK, which powers many of the projects that you can see out there, like Binance, Terra, and the entire Cosmos ecosystem. And now, Evmos, which is a project I’m building.

Mike Schwartz: Awesome. So, the topic of today’s podcast is how we can use DAOs to perhaps provide an alternate funding mechanism, an organizational mechanism for open-source projects.

But before we get into that topic, some of our listeners might not know what a DAO is. Can you help give a baseline sort of definition?

Federico Kunze Küllmer: For sure. DAO stands for Decentralized Autonomous Organization. It’s basically – think of it as a corporative or any association of different accounts that live on the blockchain or through different governance mechanisms are able to decide on certain like outcomes or voting certain proposals at the DAOhaus.

They also have like a common shared address where they can, for example, pull their accounts and their tokens, so they can spend on different initiatives. That’s how you can, more or less, create these sorts of autonomous organizations to eventually fund the different public goods and base-layer infrastructure that you’re providing through open source.

Is DAO Discord Group With A Crypto Wallet

Mike Schwartz: One of the founders of a DAO called “Friends-With-Benefits” has described the DAO as a Discord group with a crypto wallet. Is that inaccurate?

Federico Kunze Küllmer: In some way, that’s accurate. In a way that the crypto wallet is here, was that the important component, where every member of this organization has some shares, so to say, so that they can be long in this organization. So, I would say that’s pretty accurate, where every member of the Discord has some share in the organization.

Tokens V. Options

Mike Schwartz: In a traditional company, let’s say, that most of our listeners are familiar with, you issue stock to team members. That stock is normally issued in the form of options. And those options, even when exercised, are subject normally to a fairly restrictive stockholder agreement. So, in this case, it sounds like you’re saying that the sort of members of the team, instead of being issued stock, are going to be issued a token specific to this project. What are the ways that such a token would differ from the traditional options or a corporate equity grant?

Federico Kunze Küllmer: The main difference here between a token and a share in a company is the immediate access to the liquidity, when you have options for a company that is not publicly listed or is not currently raising a fund, like a funding round. It’s really hard to get liquidity for those options once they’re exercised. So, with tokens, you actually have the opposite. When your tokens are vested, you can start selling them in the open market. I would say that’s a main difference.

On top of that, tokens can also have certain behavior, like, for example, you can create tokens that are vested over certain period of time, or like some tokens that are locked for like one year. Like, trying to simulate a one-year cliff they usually have with options, and so on and so forth. So, it’s actually trying to replicate the same behavior that you have right now with options, but on a decentralized way, and actually having those tokens be liquid.

Token Liquidity

Mike Schwartz: If you get tokens in a DAO, these tokens aren’t necessarily going to be listed on a public exchange, so how exactly would owners of the project tokens get liquidity?

Federico Kunze Küllmer: For example, either you issue these tokens individually to each of the members of the team, so that they can like have different vesting schemes or vesting schedules. So, if you have like an individual joins a company or organization at a given time, you can issue these vesting schedules over time that is publicly available on the blockchain. And you can see the account that says the tokens are being vested over like four years or one year. And then, you can also create these flobots for each of the tokens.

That’s when you issue them individually to each member, and you can also create as you mentioned, like a DAO, that is covering certain rules, where all the shareholders vote to distribute the proceeds or these tokens that the DAO account controls to the different members, according to the different shares they have.

So, that’s like the two ways that you can fund this, as either issue a vesting schedule individually or the tokens individually, or the other option is like have these common wallets, where you create different wallets or proposals, which are voted by each of the members.


Mike Schwartz: Maybe I’m not understanding: if I go to pay rent or buy milk, you know, how do I sell my project token into something that’s liquid like Ethereum or Bitcoin?

Federico Kunze Küllmer: You can do that by issuing the tokens that are native, from the certain project, and usually they were publicly traded on decentralized exchangers or centralized exchangers, like Coinbase or Binance, etc., so you can like actually swap the token if they’re listed. And then, like, thus, bring in some liquidity so that you can trade the token against like another known crypto currency like Bitcoin or Ethereum.

Mike Schwartz: So, what you’re saying is that you could sort of build into these project tokens an automatic conversion feature into something that’s liquid?


Federico Kunze Küllmer: Yeah. Usually, the project doesn’t need to be necessarily the one that is providing this exchange on a decentralized way, but usually rely on other projects that are fully interoperable. If you’re building a specific application, your application can connect to another smart contract that provides this functionality for another digital assets, like Bitcoin and Ethereum, and then you can use that and trade them to fiat, for example.

Mike Schwartz: I see. So, you’re saying that there’s already a generalized token. So, you don’t issue a specific token for your project, but maybe you use a platform that gives you a token that already has the properties. What are some of the platforms that are out there that could do this? Just maybe a couple of examples?

Federico Kunze Küllmer: On Ethereum, the most notable ones are probably Uniswap. You also can find some of the others that are targeting other types. But, yeah, like the main one is definitely Uniswap, I would say on Ethereum. On Cosmos you can find for example Osmosis, which is another platform that supports this.

How To Define The Governance?


Mike Schwartz: You mentioned that in a DAO, you can implement different rules, depending upon the specific goals of your project. I think of that as the governance of the project. It seems to me like it’s somewhat challenging to set up the governance of the project. Where do you start that process? And, you know, while there’s governance frameworks that exist for Discord group participation, are there templates out there or playbooks for open-source projects? And it seems like sort of a difficult problem. And where do you start and how do you define these rules?

Federico Kunze Küllmer: This is a great question. In general, where you can find different governance protocols that are used in these different DAOs, so you can have different types of votes, you can have different type of proposals that you can submit. One is, for example, you can signal certain changes to your community. Like signal certain changes, when I introduce it to your community, how strongly do your community feels about certain topic. And those are, like, just for example, “Do you support us doing this?”

That is actually not caring weight on blockchain itself, but, for example, you can also build some type of proposals that are voted on by every member. You can distribute the tokens from these DAO, or from other community allocated tokens, in order to fund public goods, like open source or other contributions from other external contributors, which has already, for example, like my company was funded through these sorts of like community-allocated grants, through these governance mechanisms.

So, they’re like multiple types of proposals that the community can vote already, and you can find them on Cosmos, which is a Blockchain ecosystem we are in. And on Ethereum, there’s already some smart contracts that support this functionality as well for DAOs.

Mike Schwartz: But digging into it a little more specifically, when you define the governance, are we talking about smart contracts, are we talking about legal documents, are we talking about English explanation of what the rules are for this DAO, or all of the above?


Federico Kunze Küllmer: It’s usually in the set of code, and it’s a smart contract, you would say. And then, you also find another sort of like blockchains that also support governance and the code itself. So, for example, you would submit a transaction with this proposal saying, “I want to fund this team to execute on four different milestones over one year.” And then, this proposal gets voted by the entire community.

And once the proposal passes automatically, because it’s on the blockchain, the governance logic is on the blockchain, it automatically funds the team that was allocated the grant, for example, to complete these different milestones. So, you allocate it automatically, so to say, when the proposal passes..

Allocating Tokens To The Team

Mike Schwartz: It sounds like you’re saying that the measure of work that we’re going to compensate in the smart contracts for is a milestone, but when I look at an open-source ecosystem, what I see is that people tend to think about the developers, but we also have code reviewers and people who do Q&A and write documentation, and Kubernetes Helm Charts, and triage issues and do outreach.

I collectively call all of these contributors like the open-source creators, if you’re going to do one big grant for, let’s say for a milestone, how do you decide who gets what and how do you make it fair?

Federico Kunze Küllmer: Yeah. This is a great topic that is, I think, very challenging. Because there’s always someone that needs to be like continuously monitoring the milestones and whatnot, and then, also, this visibility of these different grant programs.

Some of these open-source creators, as you mentioned, maybe never heard of these ways of funding through development. Usually, sometimes there could be like one single developer that is creating one single library that is like the backbone of these other different projects. Usually, right now, how it’s being implemented, there is these like committee receipts.

So, instead of distributing the funds directly to the grant recipient, it is distributed to a committee that is composed by two external parties that are reviewing these milestones, so they get approved. And then, you also have one member of the team that is receiving the grant.

So, for example, like two out of three of these members of the committee can like distribute the funds. So, it’s more of like a reputation based, where like these other members of the committee send the tokens to the grant recipient.

Revenue Sharing With Developers

Mike Schwartz: You mention that there was a committee that decides how to compensate the team members. I know I’ve heard of some other DAOs that use something like, let’s say, how many Discord messages you post equates to how many tokens you receive as compensation.

Or, perhaps, how many GitHub issues you complete, or how many hours you work. So, is there any way, instead of using a committee, that you can build some other more intrinsically valuable mechanism to track the contribution of the participant?

Federico Kunze Küllmer: Yeah. For example, one way that we’ve dealt with this problem is by creating what we call a decentralized abstract model. It’s basically a marketplace where developers publish their applications. And then, users, by interacting with them how to pay a transaction fee. And developers get 50% of this transaction fee for every transaction.

So, in the long term, it’s creating a sustainable funding mechanism for them. Or, like, your application is more popular and it’s used by more users – they will pay 50% of those fees to your development team. And that’s how we’re trying to get all these projects funded. It’s by actually having like a way for them to get the proceeds from the users that are interacting with the blockchain.

Initial Funding

Mike Schwartz: That’s interesting because you answered my question in a different way than I anticipated, which brings me into an area that I was going, which is, of course everyone wants to get paid. I think of that as the left side of the equation, developers, or other creators, or community members, getting paid tokens. But on the right side of the equation, we need to actually have people giving money, whether that’s fiat or crypto or something. The value has to flow into this ecosystem.

So, the model that you mentioned is interesting, where you’re saying that perhaps the people who pay for the code, a portion of that code goes to the creators in a community. And by the way, I think you still have the problem of how to split that value between these very different creators.

But tell me, well, maybe let’s go in that direction and say, besides this model you thought of, what are some of the other models, why would companies or people want to fund a DAO? In the traditional corporate startup world, we find angel investors or venture capitalists, or strategic partners who put money into our company, when we’re starting a DAO, what’s the equivalent of that?

Federico Kunze Küllmer: I think it’s all changing the model from value capture to value creation. A lot of these open-source creators actually need funding to finance the engineers in the day-to-day operations of the project. The main thing that you can do that is by creating these sorts of DAOs, then fund these public goods, sort to say. That’s why you can find these public goods in DAOs to fund these like open-source contributors.

Mike Schwartz: So, before I can sell my product, I have to build it. It’s hard writing software, you know that. And sometimes, it takes longer than we think to write this. So, a bootstrap model where we’re directing funds from the output of the software back to developers is great, but only after the product is done and shipped, and people are paying for it because it’s valuable. But what about before that? Or how do you get it started, I guess?

Federico Kunze Küllmer: We, for example, our company got funded through this mechanism. We didn’t have any investors, prior investors before, we created our project. So, we have requested – through our governance proposal to the community of another blockchain, which is the Cosmos hub – we’ve requested funding to basically fund our entire team for a year. And that helped us like bootstrap all the necessary funding to create a company, to hire engineers to basically ship the code that we were meant to deliver with this proposal.

Mike Schwartz: Was this a one-off where there was something very specific to Cosmos Hub, or is there a playbook here for other open-source projects? How does that playbook differ?

Federico Kunze Küllmer: Yeah. And this case was something like specific to the ecosystem itself, because our project was going to attract a lot of developers from the Ethereum ecosystem that already knew how to build smart contracts.But if you try to extend this to a more general case, not necessarily funding blockchains or decentralized applications, you can also find different DAOs that can provide this funding in exchange for — I don’t know, like shares.

Because sometimes the main struggle right now of all these projects, open-source projects actually, is how to get funding. Some of them don’t necessarily have a business model, but they’re providing this utility that serves, as I mentioned before, it’s like the base layer so many other projects rely on. I think that through DAOs, you can actually create a lot of funding opportunities for all these different open-source projects that can have like a potential impact, not only in blockchain but in the entire open-source ecosystem.

DAO Frameworks

Mike Schwartz: So, there’s a number of platforms out there for DAOs. The ones that I’m thinking of are mostly built on the Ethereum blockchain. So, things like you might have heard of Aragon, or Utopia, or Syndicate, or XDAO, or Colony, or DAOstack, or SubDAO – there’s a bunch of these frameworks or platforms for creating a DAO. Because to create the technical infrastructure for DAOs, for example, the voting or the treasury function takes quite a bit of work and knowledge about how to build smart contracts and how to build this infrastructure. Tell us a little bit about how you build Evmos.

Did you use one of these platforms or did you build your own platform? And what are your thoughts about some of these platforms for open-source projects, maybe more quickly create a DAO to incentivize their creators?

Federico Kunze Küllmer: I’m going to reply first how we build Evmos. We used a framework for building blockchain, because our project is a blockchain that provides a base-layer infrastructure for smart contracts that are fully interoperable with the other ecosystems. So, we’re expanding on, like for example, in our case, like smart contract interoperability.

So, the framework that we use is not necessarily meant for DAOs but to create your own blockchain. Like, for DAOs, or like these open-source funding communities that want to be created through different DAOs, I think Aragon provides like a great framework for you to, like, one-click deploy of Dao in order to create your community.

Mike Schwartz: It sounds like you’re saying that using a framework is a good idea, but you didn’t go that direction because you are blockchain experts. Is that a fair reading?

Federico Kunze Küllmer: Yeah, exactly. We’ve been working on blockchain for the past five years or so. But if other communities that are maybe not as familiar with blockchain and want to create this, the way to go is using one of these frameworks to build different Decentralized Autonomous Organizations, or DAOs, that provide different options for you, like different voting rights, different threshold for voting, or how much quorum do you need to get your different proposals that you have within your DAO, different voting types and proposal types.

You can even have different thresholds, so to say, to send funds from the DAO out to other wallets and to fund the development. So, yeah, I think these are very flexible, these new DAO tools are very flexible for you to upgrade your own value proposition.

Evolving The Governance

Mike Schwartz: So, we’re in early days of DAOs, and it seems like, even if a project decides to use it as approach, they are probably not going to get it right the first time. How do you make your DAO flexible enough? Or do you maybe give it like an end life and say, “Well, this is what we’re going to do for a year, and then maybe we’ll start a new one, based on that experience.”

What’s your advice on? As this technology adapts and we’re learning so much, how do you do something today, and not totally regret it, like in a couple of months that you should have done this thing or that thing?

Federico Kunze Küllmer: The beauty of these tools is that actually you can add more functionality as you go. I think they’re very flexible in terms of like, oh, you misconfigured something or you want to add new functionality, and these tools allow you to do so.

Mike Schwartz: Great, but there’s tools and rules. And when you set up the governance for the project, you’re setting the rules for your ecosystem. And you changed the goalposts, so your team might not be so happy. So, what are the strategies for sort of, on the governance side, for acknowledging that things are changing and you might need to make changes?

Federico Kunze Küllmer: Yeah. I think like involving your community that is part of the DAO is the first step. Because, trying to push for these changes in a unilateral way is more complicated in the long run because you will be seeing us, as I mentioned before, like value extracting, then value creation. Yeah, then creating value for the entire community.

So, I think like involving your community members is the first step to try to do so and try to get feedback from them. And sort of like, if you feel strongly about a certain rule to be implemented or completely crossing out an existing rule that can be eventually updated, or even deleted from your, say constitution of this DAO. Involving the community on like what decisions you should take and how strongly they feel about, I think is like the first step that you need to take.

Seasons

Mike Schwartz: In “Friends with Benefits”, I heard them talking about seasons, season 1, season 2. So, does it make sense to sort of like have a contract with your community that says, “Okay. These rules are temporarily fixed, and we will revisit them at a certain point.”

Federico Kunze Küllmer: Yeah. I think of seasons are more of like periods in different governments that we have today. So, like, you have the president that is only for like one period or one season in this case. And then, you can go for re-election. Or you can, in this case, if we were trying to compare this with a season of this DAO, it is like, “Oh, do we want to extend these existing rules for another period and then releasing at the end of the period, or do we want to change them completely, or do we want to change a few of them?”

I think it makes sense to have a certain period where you say like, okay, we’re going to take a step back and revisit like all the things that we made during this period. See how we can improve them over time, if we made any mistakes, how we can compensate for them, and like try to release all the changes that need to be implemented for our community to be happy, engaged and incentivized in the long run.

Are Companies Afraid Of Blockchain?

Mike Schwartz: I was just at a conference and I heard somebody say that traditional companies, let’s say, are still afraid of blockchain. You know, they might say that they’re interested, that they want to research, but ultimately, they’re afraid of blockchain. But have you seen any evidence from companies, or do you think it’s fair to say that companies are still terrified or just don’t understand this whole space?

Federico Kunze Küllmer: I think that like expanding this to companies as well is also very beneficial for the entire ecosystem of open-source, like using blockchain too, like us, as an alternative source of funding for the companies that already provide regular payments or subscriptions to these foundations in order to build support. I would say the main challenge here is, once you have enough builders, or enough companies, or enough projects, like subscribing to these DAOs that provide funding for open-source projects is how do you actually distribute those funds, and how then you prioritize different support, so to say, for features that some company might prefer to include, for their own benefit versus other that is also providing that. I think that’s one of the main challenges.

For example, GitHub is already doing that through different sponsor tears, like the higher amount tears usually have prioritized supports and features. And I think that could be built in a DAO for example, so that you can have like prioritized support from the open-source team to your specific company. And I think if DAO were to be built in a blockchain, that will create like more funding and more, I would say, openness also, for companies to adopt this.

When To Get Legal Help

Mike Schwartz: When we’re just in the crypto world and we’re talking about a crypto wallet and smart contracts, we don’t need any lawyers, because this is completely unregulated world.But when we connect to the real world, especially if we’re going to engage companies, we’re going to need actually some type of like legal entity perhaps. And perhaps we’re going to need to get the lawyers involved. You know, I’ve heard finding lawyers who understand this decentralized token-based crypto world is difficult.

Are we making inroads in this area, and at what point do you think that maybe you need to get a lawyer, to look at whether your project’s use of this new incentive model might need some real-world legal guardrails?

Federico Kunze Küllmer: I think the main safeguard towards — like preventing this sort of like extraction of value from these open-source projects is creating the right licenses. I would say like open-source licenses can also, with the help of lawyers that understand open-source licenses, can already create some sort of defense mechanism for you to prevent these cases. And I think there’s already projects in the blockchain ecosystem that have created their own license, preventing others from just like extracting the value that they’ve created through this open-source code. And then, like framing them as it was theirs, so to say. They want to still be open-source, but at the same time, they want some retribution, or they want some like external support.

So, as for licensing, getting a lawyer there on blockchain licensing, it’s like one of the first things. If you’re building an open-source project for the DAO day-to-day operations, you probably won’t need a lawyer to work necessarily on many of the cases, because you can say that, for example, this smart contract would govern your rules or your constitution of the DAO, but not necessarily have someone like enforce certain contracts directly with each of the members of the DAO, because it’s all decentralized, all governed by code.

Evmos Business Launch?

Mike Schwartz: I think this is the longest discussion we’ve had about underlying technology of these podcasts ever. So, I want to like finish the podcast with talking a little bit about Evmos. You’ve put this playbook into action, and where are you now and how is it going?

Federico Kunze Küllmer: It is going great. As I mentioned before, we got these projects fully funded through the open-source community of the Cosmos hub because Evmos was meant to build the base-layer infrastructure. It is fully open-source, and we built up a library that allows other communities or other teams to build smart contract support for their applications. So, we built this with a community grant, and we finally launched two days ago, on Wednesday, 27th of April. Yeah, it’s going well, very smooth, after having a few hiccups in the past.

And now, like everything is running super smooth, and hopefully, in the next few months, we can focus on smart contract interoperability. And of course, this will be fully open source for the teams to benefit. Because like all the other projects in the ecosystem will be able to connect and interact with smart contracts so that you can have your DAO to create this sort of different sources of funding, was isolated in only a single blockchain, but now, with the infrastructure that we’re providing, that is again open-source, you’ll be able to connect these DAOs with other blockchains and other applications out there.

Are Developers Receving Tokens?

Mike Schwartz: The economic model that you described earlier, where value is flowing back to developers – have developers gotten any tokens yet from adoption?

Federico Kunze Küllmer: The adoption model is basically a marketplace between developers and users. In our launch, two days ago, we introduced incentives for users that interact with the smart contracts. And in our next release, which is going to probably be in two or three weeks from now, we’re going to introduce a fee model that is basically sharing the proceeds from the transaction fees with the developers. That is already fully implemented, we’re only running on some internal test through Q/A process. And it’s going to, hopefully, be shipped really soon.

Developer Education

Mike Schwartz: Did you have to educate your team about this new model? Did you have any formalized education or they were mostly blockchain gurus and they understood all this right away?

Federico Kunze Küllmer: It’s a complete novel way because it’s never been introduced before in the entire ecosystem. Usually, the proceeds don’t go to developers even though you are interacting with their applications on their smart contracts. Their proceeds would usually go into the miners, securing the blockchain.

So, we had to create an internal specification, an internal memo, and architecture decision record from an engineering point of view. And then, like, finally create like a blog post meant for the general audience about this token model, for how to incentivize developers, how to incentivize users through this new model that is completely innovative in the space.

Details Of Evmos Blog Explaining Model

Mike Schwartz: Would you say that that blog post has enough detail to serve as a real playbook or template for other open-source projects to replicate what you need to do?

Federico Kunze Küllmer: Yeah. If you go to https://medium.com/evmos , you can find the blog post about the token model on how  this fee mechanism works to share the transaction fees. And if you go to our documentation under https://docs.evmos.org/ , you can also find the technical specification of how to implement this and how this works at a technical level on the different concept it has. So, then, as an engineer, you can also learn more about like how it works under the hood.

Evmos Governance

Mike Schwartz: Is the governance also defined somewhere where people can say, you know, what are the rules that they set up for Evmos? And maybe I can adopt that for my ecosystem.

Federico Kunze Küllmer: So, we share the same rules as the entire Cosmos blockchain ecosystem. And you can also find some documentation guides, and FAQ is also in our documentation, if you go to evmos.dev, about how governance works, how the voting procedure works, what are the different like governance proposals, etc.

Why Cosmos V. Ethereum?

Mike Schwarz: Cosmos versus Ethereum. Why did you choose Cosmos?

Federico Kunze Küllmer: So, Cosmos, first, is for fully sovereign interoperable ecosystem of applications. So, instead of having to share the same blockchain space, as you find in Ethereum, you can sort of like create your smart contracts in there, and they can interact with them, but they’re isolated in the same machine. And what you want sometimes, as an application developer, is to have your own community, is to have your own ecosystem.

But you want that ecosystem to also talk to other blockchains or to other applications, so that you can like connect, and create value, create different sort of like use cases that weren’t impossible before. So, Cosmos allows you to basically create these applications that are fully sovereign in the sense that they have their own voting mechanism, for their own community, but they’re at the same time fully interoperable with other blockchains in this space.

Cosmos Compromises

Michael Schwartz: A lot of people talk about like the properties of blockchains, like decentralized, fast, and sometimes they involve also compromises. You know, when you get one thing, you have to give up another. Can you talk a little bit about what are the compromises that you make on Cosmos would you say?

Federico Kunze Küllmer: Yeah. So, the main thing is composability, which we solved now with Evmos that we launched two days ago. So, composability stands, like you have someone else builds an application for you. You have all the base-layer infrastructure and you want to deploy just your application, you don’t want to deploy like a full blockchain, which you need to build like, I don’t know, like a business development team.

You need to build miners to run on your blockchain, you also need to create like a marketing team and all that stuff. Maybe you just want to deploy your application and see if other users interact with it. You want this application to also interact with other applications. I think that’s a main trade off.  On Cosmos, before Evmos, you didn’t have that functionality to deploy applications that were interacting with each other. And then, the other thing is developer manager.

I think a lot of developers go to Ethereum, even though their transaction fees are higher, and they don’t have fully interoperability solutions or sovereign solutions like Evmos has. So, they have like way more developers, for example, than you can find on Cosmos.

Advice For Entrepreneurs

Mike Schwartz: Awesome. So, this has been a really great conversation. I know we’re a little bit over on time, and I think it’s such a deep topic. Before maybe to wrap up, if you have some final advice for open-source founders or entrepreneurs out there, what would that be?

Federico Kunze Küllmer: The first thing is to look for different alternatives out there. If they’re not super familiar with any specific project that is funding this, but I think like funding this through a DAO, if you are a small developer, you can easily get like a grant on all these communities to create base-layer infrastructure or applications for libraries that can help these different blockchains. And I’m also available on Twitter for you to like DM me, and we can talk about your specific needs. You can find me on https://twitter.com/fekunze?lang=en on Twitter.

Mike Schwartz: Federico, this has been really fascinating. Thank you for answering a lot of my very basic questions and being so patient, and best of luck with Evmos. It sounds like you’re doing really great work, so thank you again.

Federico Kunze Küllmer: Thank you, Mike. This was super interesting.

Credits

Mike Schwartz: That’s it. Special thanks to the Evmos team for helping us schedule and promote this. Cool graphics from Kamal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere.

Mike Schwartz: I wanted to get this one out as soon as possible because the business model is so innovative.

Watch your feet for more episodes. We will probably resume next year. I have a list of companies and leaders that I’d like to interview. I wanted to get this one out as soon as possible because the business model is so innovative. Thanks for listening. And please reach out to me via the website if you have any ideas for the show.

Episode 57 – Tokenizing the FOSS Package Ecosystem, with Max Howell, Founder of Tea.xyz

Tokenizing the FOSS package ecosystem.

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.

Episode 53: Rajoshi Ghosh, Co-Founder of Hasura, Controlling Access to Data with GraphQL

Intro

Mike: Hello and welcome to Open Source Underdogs. I’m your host, Mike Schwartz, and this is episode 53, with Rajoshi Ghosh, co-founder of Hasura, a relatively young startup, using GraphQL to connect Enterprise data. I’m happy to report that Rajoshi is the first Indian national we’ve had as a guest on the podcast, a trend which I hope continues. Although she’s normally based in the Bay Area, Rajoshi was in Bangalore in late July when we recorded this.

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.

As I mentioned, Hasura is a young startup, but given their success in momentum, I thought it’d be interesting to hear their stories sooner than normal. If you’re interested in GraphQL you might also want to listen to episode 41, with Geoff Schmidt, the founder and CEO of Apollo.

So, without further ado, here is Rajoshi Ghosh, co-founder of Hasura. Welcome to the podcast. Thank you for joining us today.

Rajoshi: Thank you so much for having me, Mike. I’m really happy to be here.

Origin

Mike: What’s the origin story of Hasura?

Rajoshi: At that time, Michael, we started working together really long time back, and I think at that point, we really wanted to work on something that would make application development easier, but we did not know what shape or form this would take,  and so, what we started doing was, we started building products for — started off with friends, and then, moved on to like local startups and then started working with one of the largest banks out there, help consulting with them.

We realized that if we were building enough products across different types of companies and different industries, then we would learn a lot about the different businesses, and also, it gives us an opportunity to try and build tooling that can work across companies of different sizes and different industries and verticals.

So,we got into this consulting business that we did, but the entire time we had a small team that was continuously building different products that could be used across different clients that we were working with. So, we did that for about three and a half years, and then, it came to a point, where we built a bunch of these tools, and you know, we were faced with the decision of signing like a multi-year contract for a consulting gig with a really large bank or actually going back to saying, “Okay, let’s take these products to market and build a business out of it.

So, we decided to start Hasura, wind down the consulting practice. So, that’s kind of how we set up the tools, that, like, parts of Hasura were built. So, what we did after that was, we spent a few months taking these different pieces that we built to market, trying to open-source a bunch of them, saw how folks were reacting, trying to understand the business implications of these products being used.

And that’s kind of how the Hasura GraphQL engine, which is our open-source product sort of came about. You know, we spoke to a bunch of people, realized that data access was a big problem that people seem to be struggling with across all kinds of companies, and again, different sizes of businesses. So, that was the piece that when we open-sourced and we wrote about it, and we put it out, and I think the first blog post that we had about our product resulted in our Fortune 500 health care company, reaching out to us and saying, “Hey, we really want this.” So, we knew we were onto something. So, it started out with this consulting practice, building pieces of this data access problem, from there, and then kind of polishing it up and launching it as the Hasura GraphqQL Engine in 2018.

How Is Hasura Different From Apollo?

Mike: A few episodes back, we had Geoff Schmidt, one of the founders of Apollo GraphQL, and although this is a business podcast, not a tech podcast, we have a lot of tech listeners out there. So, maybe you could just give a quick overview. I know that Apollo is part of the community, you’re part of the community, and the products are different, but maybe you could just give a quick overview of like how the products fit in the market?

Rajoshi: Absolutely. At Hasura, we kind of came at this problem, from the data access angle, we were trying to solve the data access problem, and back in our consulting days, we have actually built our own version of GraphQL called Urql, and we had that whole thing going. And every time we would talk to people about what we were building – and this was around the time GraphQL was getting popular, people would tell us, “Hey, this sounds an awful like GraphQL, why don’t you add support for GraphQL?”

So, that’s how we sort of braided into the GraphQL space, but we sort of came at it from the data access piece, so, what Hasura as a product does today is the service that you connect to your database and other data sources, and it kind of instantly gives you GraphQL APIs. So, it’s sort of short-circuits, the path, like you don’t really need to build a GraphQL server, Hasura kind of becomes that piece in the middle that connects to your database and other services, and gives you these APIs. And Hasura gives you a metadata engine, where you can specify the relationships between your different pieces of data – you can add authorization, logic, we have a very granular authorization system built in. And then, you can start accessing these APIs directly from your front-end clients.

That’s how we fit into the GraphQL ecosystem. And now, we have our – Hasura is available as a cloud product, and what you also have is, you have a lot of features that help you kind of run Hasura production. And there’s a little bit of overlap with some of the things that Apollo engine does, which is basically, like monitoring and analytics, and sort of add that API layer. So, these are the features that we have in common, but the problems that we’re solving are very different.

I think Apollo is coming at it from the side of being, like a GraphQL Gateway, where every different service speaks GraphQL, and they’re kind of the GraphQL Gateway. And they are building tooling at that GraphQL Gateway sort of layer, where, we are sort of more on the infrastructure layer, where we are solving the data access problem. And we give you GraphQL APIs.

Lessons Learned

Mike: If you could go back to that day when you said, “Okay, we don’t want to take this contract, we want to move forward with a software company.” That must have been a little while back, but if you could go back to that day, would you do anything differently in terms of how you executed after that?

Rajoshi: That’s a very interesting question. I would say not. Because what happened, like, the steps that sort of followed from there, we took the product, we had built some great text, so, we raised some seed money based on some of the tech built, we took that to market.

And once we put out the GraphQL engine on like, we did a show and launch like a Hacker News launch. And that was a pretty good launch that a lot of people found out about the product, and usually what happens is with Hacker News launches, they are very transient. Somebody finds out about it on one day, sometimes it goes great, but sometimes, there are new products being launched that every single day.

But I think what helped us sort of stick around after that initial launch was the fact that when people started trying it out and looking at our documentation, there were two things that I think really helped us over there. One was that either documentation was very complete. This was also because this was a problem that we’ve been at for a while.

And the second thing was that getting started experience was magical, like it was 30 seconds to your first GraphQL API. You would connect it to an existing database, existing Postgres database. And you would instantly get APIs. So, that sort of helped us get the word around, got people excited. And they spoke about it to each other, and that started off our sort of developer adoption journey.

So, we were still tagged Alpha back then, and we already saw all kinds of companies starting to use Hasura, and putting it in a very critical part of their stack. So, what happened is, we hadn’t actually started building a commercial product just then, we just put this out and we were still trying it out. But because of the kinds of companies who’ve started using us, they started calling us inside, saying, “Hey, you know what, we’re using this — if this goes down like who are we going to talk to, like, can we sign a contract with you. And then, he started getting these calls from companies, and that also helped us sort of like inform our kind of roadmap of how we were going to build into our Enterprise product. And then, we launched that earlier this year.

I think the journey has been one of learning, and on all sides of things, like growing an open-source community, growing the usage of an open-source software, and then building a commercial product around it – that’s been a really good journey. And I think the fact that people really, like, the commercial versions of the product as well is something that comes from having been through the journey with our users, listening to our customers and working alongside them over the last two years.

Monetization Strategy

Mike: So, that pivot that you’re describing is really difficult to make from open-source project to commercial product, and you’re probably still making that pivot as we talk, but can you talk about what are your thoughts about the strategy for whether – I heard you mention that you launched a cloud service – that’s certainly a fantastic business model. There’s also a lot of innovation around open core, making certain parts of your product, commercial vs. open source. So, how have you figured out how to monetize some of the open source to fund the company?

Rajoshi: I think the way we’ve been thinking about what comes apart of sort of our commercial offerings is, things that companies using GraphQL engine in production will start needing, you know, when they are in production. Things like monitoring and analytics, stuff like query capture, so that you’re able to create allow lists when you’re in production, prevent breaking changes with regression testing, great limiting of your queries – these are kinds of features that people need when they’re in production. So, these are the kinds of things that we put in our commercial versions.

And the core GraphQL engine, which sort of gets you building and then, you need to self-manage, and you need to build all of these toolings yourself, but the call that sort of gives you the APIs and helps you connect to data systems – that’s in the open-source part. Because that’s part of your critical infrastructure, and you know, being an open-source product, if you’re in the infrastructure I think is almost given these days.

Cloud Positioning

Mike: What’s the positioning of the cloud product? I understand you just launched that, but what is your vision for? Is that going to be a major part of the revenue streams, or is it just from so people can get started and kick the tires quickly – where do you think that fits?

Rajoshi: It’s very new. We just actually announced a general availability, we launched it about 4 weeks ago. So, it’s very, very new, but we do foresee it being a critical part of our like revenue stream going forward. So, what we did is, we actually re-engineered a sort of open-source engine for it to be like a true cloud SaaS product. Both of the things you mentioned are important in the sense that getting started with Hasura on cloud is something that we absolutely care about, that being the best experience for you to get started on Hasura, so that’s extremely critical to us that anybody who wants to try Hasura, the experience of getting started on cloud should be magical.

So, that’s very important, but it’s also something that we’re building for, you know, companies running Hasura at significant amounts of traffic and scale introduction. We have interesting sort of things that we’ve built into the cloud, and one of those is sort of like dynamic data caching. And that’s something that we’ve — I know that the podcast is going to be out about three weeks after we speak, but actually in just about an hour, my co-founder’s going to be speaking about server-side caching and dynamic data caching as part of the GraphQL summit, where he’s going to talk about how we’ve built it, and what is our sort of vision of the cloud, which is something like CDN for data. So, that’s kind of where we see it going, where you build, you connect your data sources.

Data is being fragmented, and data is everywhere – it’s in your databases, it’s a multiple data sources, and you have this managed infrastructure piece in the middle that just has to connect to all of these data sources, magically get this API. And it’s fully managed, it scales, it’s super fast. And so, yeah, that’s kind of the way we look at the cloud product.

Value Prop

Mike: You mentioned that Hasura is almost like a data connection layer. One of the main value propositions must be getting access to your data, but what are some of the other reasons that driving Enterprise customers in particular.

Rajoshi: I think for Enterprises specifically, since that was your question, I think one of the things that we’re seeing and that our Enterprise customers are seeing is that time to value and time to market. So, as people like building with Hasura, and we recently had our user conference, where, Philips healthcare, one of the Solutions architect there, who’s been a Solutions architect for 26 years, spoke about how something that they were building with Hasura would have typically taken them two to four years, but build and ship this product in under a year.

So, companies and Enterprises are saving like quarters and like years of work by using Hasura, because Hasura is just – you get these APIs with access control out of the box. This could be anywhere from like 40 to 90% of the backend logic that you need to write. So, that’s a huge benefit. And that’s kind of what is also helping Hasura spread by word of mouth within the Enterprise. Once one team starts using it, other teams sort of see the pace at which people are building, and that’s helping the word spread within Enterprise for us.

So, that’s one. The second – there’s two other things that, again, we’ve heard our users talk about. One is having better domain understanding. There is this layer that connects to all of your different data sources. You sort of have a better understanding of your domains. And that helps architects and that helps team lead sort of build faster, because as things are very fragmented, Hasura kind of brings that unified view of your different access control rules across different data sources. That also adds to the speed aspect that I spoke about, but that’s also in itself with huge benefit that enterprises are seeing today with Hasura.

And the third one is enhanced security, and again, each of these points of sort of building on the previous thing that I spoke about, which is, we have the Hasura console, which is this UI, where you can see all of these different access control rules. And so, you’re able to see very granular access control rules are set up for, again, all of the kinds of data access that you need to do. So, having that visibility in one UI makes it very easy for again Enterprises to handle the security aspect of data access. These are things that we’ve heard time and again from our Enterprise users as benefits that they see building with Hasura.

And on top of this is the entire GraphQL piece, which is all of the benefits of GraphQL that is making people move towards GraphqQL, the amazing developer ecosystem around the tooling, the developer experience for front-end developers to get started and build products fast. So, the front-end experience with GraphQL along with the themes experience with Hasura to handle all of the different data sources in the access control kind of makes that package really valuable for our users, especially in Enterprise.

Community

Mike: You mentioned the user conference, and I’m wondering what is the current community like for Hasura, and how do you see developing the community, and giving the community enough value going forward?

Rajoshi: We have a really, really engaged community around Hasura, and it’s something that we’re all very, very excited about. And it really makes us very happy, and we deeply care about the community around Hasura. So, more than half of our engineering team is working on our open-source product. There’s continuous development, and we’re listening to our users in the community very closely and sort of acting on things that they are talking about. So, there’s that aspect to it.

And there’s also the aspect of like really helping the learning process. So, we have a very extensive set of tutorials on GraphQL on Hasura, on authorization that we’ve built on hasura.io/learn, which basically the GraphQL tutorials over there are like vendor agnostic tutorials, which are just about getting started with Hasura, whatever sort of stack your come from, especially for front-end developer. So, I think we have almost more than 10 tutorials for different stacks for you to get started with GraphQL.

And overall, the site has I think almost like 15 to 17 tutorials on like full stack, front-end, back-end authorization data modeling. So, these are things that we put out continuously for the open-source community. We have a very vibrant discord community, and we have community champions, who are folks, who are helping out each other and helping out other users who are coming into the Hasura, new folks who are coming into the Hasura community, so that’s where the community hangs out.

And yeah, I think bringing all of these aspects together at the user conference was truly amazing for us two years into launching Hasura that we put out this user conference, it had about 33 talks of which three were from Hasura folks, and the other 30 were from the community, just talking about different ways, in which they are using Hasura different pieces of tooling that they’ve built. So, it was really, really good to hear and good to see the community coming together, giving back, and by talking about how they’ve learned and build things with Hasura.

Community Code Contribution?

Mike: Does the community actually commit any code?

Rajoshi: We do have community contribution that’s happening on console code based, on documentation, on sort of lots of tooling, but yes that is community contribution going into the code records.

Pricing

Mike: Pricing is one of the hardest exercises, not only for open-source startups, but I think for every company. What are some of the gates that you’re thinking about for pricing, and how do you get, for example, intrinsic value based pricing for the customer?

Rajoshi: Yeah, this is something that we’re thinking deeply about and also evolving. We are very, very early in the stage, in this journey. I’m sure, down the line, that we add a lot more color that I can add to this conversation to this topic, but right now, we’re thinking about it as basically pricing on the cloud product, consumption-based pricing, which is basically on data pass-through.

We have a starting tier with certain amount of data pass-through, and then, we’re basically charging on data pass-through. And we have a few more things on, the number of collaborators and the limits we apply on some of the features that you get. But the primary way that we’re thinking about pricing is on the data pass-through.

So, that’s currently how we price on the cloud product, and for Enterprises, which either on the cloud or on, a self-hosted model currently, its feature bundles and pricing per project, which is unlimited usage but pricing for project – that’s how we roll pricing on the Enterprise, but on Cloud, it’s with these usage limits. And that scales as your usage of the product scales, and each of these is for personal project.

Serving SMB?

Mike: So, a lot of software startups, some in your area, are making most of their money in the Enterprise space. I bet you think that you’ll find a way to also offer products and services to smaller organizations.

Rajoshi: I think. I mean, today our users do span the spectrum from the hobby developers to folks in the enterprise, we definitely – our Cloud product is meant to be something that caters to smaller products that are just kind of getting started in introduction. And there’s always open source that you can sort of sell, post and run across any kind of hosting service that is – yes, but the cloud is something that we have envisioned to be anyone running GraphQL introduction should be able to start a pricing would make sense for them economically. And that’s sort of how we’re thinking about it. And like I said, it’s very early days for us. And so, we’re going to sort of observe and see how it scales for us over the next few months and keep tweaking this.

Team

Mike: Right now, you’re sitting in Bangalore, one of the urban hubs of technology, what are your thoughts about growing the team, and how you’ll have to adjust the plan for the pandemic?

Rajoshi: We started, becoming a distributed company early in 2019, I think 2019 was when we brought our first remote colleague on board. And since then, we’ve been hiring across the globe remotely.So, that was very helpful to US during Covid, like all of our communication and all of our working in a distributed manner across different time zones. So, that really helped us when we all went with Covid-19.

So, in terms of growing the team, I think we will continue to hire across the globe in different cities and different countries –  that’s how we’re thinking of growing the team. We do have a base in Bangalore, and we have a base in San Francisco, so, we will look at hiring across these two cities. But we, also, currently, we have people in, I think, over 20 cities outside of these two, the side of Bangalore and San Francisco, maybe even more – I haven’t actually done a proper count, but we have everybody from, like LA to Melbourne, and like everything in middle.

So, we can’t actually do an all-hand’s call, where we have everybody in the same call, because we have like the West Coast, we have Europe, we have India, southeast Asia, and Australia. So, we kind of do this call in the morning, you know, morning time SS. And then, we record that, and we do one in the evening, like late evening, which works for like Australia, Asia and Europe. And this kind of play the recording, and then do another second half, and then, record that, and play that in the next thing. So, we figured this out, and it’s working pretty well.

But we’re already across time zones, where we can’t fit everybody into one call that is not a crazy hour. So, I expect us to kind of keep trucking along that way. And it’s fun! I mean, it’s great to have colleagues from like all over the globe, and we try to bring everybody together twice a year. That’s surprisingly enough. We actually had one of those this year, which sounds magical and unbelievable almost, that we actually had a team off site in 2020. But we did that just before Covid struck, and now, we’re all waiting for that to happen again.

Advice For Open Source Software Startups

Mike: It’s really hard to start any kind of business, but open-sourcing your software adds a little extra challenge I think. Do you have any advice for founders on how to find the right balance to make open source an advantage in their business model?

Rajoshi: Yeah. I think open source is a very important question to ask, if you are sort of just starting off and the decision is between, like, should I open source or not. I think why is open source important, it’s that specific kind of business is for important question to ask. I mean, there are every kind of products that are open-source and closed-source alternatives.

In the infrastructure space, open source has pretty much become table stakes for people, for how software is being adopted, but I think thinking through the business model from the beginning, and not making that an afterthought is going to be very important. That would be my only piece of advice to sort of think about it from day one, at least as much as you possibly can.

Because there are two ways – either you start a business intentionally, saying this is going to be an open-source business. And then, I’m going to start clearing on commercial features. Or you build something open source as a side project, and that kind of takes off, and then, you try to figure out, “Oh, wow, everyone’s using this – how can I make a business out of it?” I guess if that’s the way you’re going about it, then, you will have to figure it out as it happens. But if you’re intentionally doing it, I think thinking through, really thinking through how will you start monetizing, right from day one, is going to be very important. Because, often times, if the differentiation factor between what is open source and what you plan to make a part of the commercial feature, if it’s not very well-thought out, then, that can lead to all kinds of problems, both from the community, as well as just generally as to become a viable business.

Did Hasura Plan The Business Model Early On?

Mike: Did you follow your own advice there?

Rajoshi: Yes, we did, we did. I think we did. Partially we did, definitely, we know that we didn’t want to make our commercial offering. Their support base model wasn’t what we were going for – that’s not the kind of open source company we were building out to be. And we also did not want to have our Cloud version to be just like a hosted offering. Because the problem, the way we see it, if it’s a hosted offering of your open-source software, then, everyone’s bound to compare it to here. But I can host it on so-and-so provider for like this much cheaper.

We did not want to go down that path, we wanted to really offer teachers, which were part of our commercial offering that would really, again, make sense for the stage of the company you were. And, it would economically and ergonomically make sense.

So, it was always about that – what are the things that you will need once you’re in production, you know, you birth the product, you trust the product, and now, you want to go ahead in production. And what are the things you don’t want to worry about when you are in production. And that’s kind of what we look. The jury is still out – I mean, well, we’re going to see how this works out, but so far, the signs are good. I think people are really liking our commercial features and the product, but it’s early days – we will see how things evolve.

Role Models For Rajoshi?

Mike: You’re the first Indian female founder we’ve had on the podcast, and we hope you won’t be the last. I’d like to end with this different question than I normally ask. Who are some of the leaders and role models that influence your decision to co-found Hasura?

Rajoshi: Wow…that influence my decision to co-found Hasura? That is a very difficult question to answer because I used to be in genomics and research – I’m a bioinformatics person by sort of education, in the first few years of my career. And if somebody had asked me then, “Are you going to be the co-founder?” Like, whatever, start a company – I think it would have not crossed my mind. I was deep in the academic world, and it was so far away from anything that I thought about that, I don’t think I would have had an answer.

When I started working at this Incubator is when I saw how startups work. You know, I found about startups, this incubator that I work. I used tohave a lot of folks who worked at successful companies, who would come and speak to the students, though I was a mentor there, I was also a student, because I was teaching them programming and learning about all of these different amazing business things from folks that had successful startups. And that was the first time that thought crossed my mind.

I think my journey – once I did that, that was an 11-month thing, where I thought – I think for me after that, it just seemed like the next step that I have today. And that’s kind of how I got into it. It wasn’t again like an extremely like, “Okay. I am going to start a company.” sort of thing, it’s sort of just like my life experience has led me to this. So, I guess I don’t know how I can sort of talk about role models and who kind of influenced my decision – I think that experience that I had teaching at this Incubator – which is actually based in West Africa in Ghana, and it’s done by a Silicon Valley company called Meltwater. It’s an amazing program, and they bring students or fresh graduates from university, who want to start companies, and train them. And just being part of that ecosystem, I think that was my inspiration, that entire experience was my inspiration to sort of stop something and not get bogged down by, you know, it’s just going to be really impossible to do.

Closing

Mike: Oh, congratulations. I think you’re going to be the role model for the next generation of entrepreneurs going forward. So, best of luck with Hasura and everything else you do. And thank you so much for being on the podcast.

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

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

Next time, we have Justin Borgman, CEO of Starburst. If you don’t know Starburst, I highly recommend listening because it’s an amazing story of a perfectly executed startup – Justin was great.

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



Episode 52: Melissa Di Donato, CEO of SUSE

Intro


Michael Schwartz: Hello and welcome to Open Source Underdogs. I am your host, Mike Schwartz, and this is episode 52 with Melissa Di Donato, CEO of SUSE. SUSE really needs no introduction except to say that as one of the oldest open-source companies in the industry, it maybe has more traction than most people give it credit for, particularly in Europe.

As you’d expect for the CEO of SUSE, Melissa has had a stellar career as a developer and business leader, had many large and small firms, including Oracle, PWC, IBM, Salesforce, and SAP. I was particularly looking forward to this interview because SUSE has such a long and interesting history, and it’s reinventing itself right now to play an important role in the next phase of the open-source revolution. Some of you may have read about the recent announcement to acquire Rancher. This was a brilliant tier in my opinion and shows that they really understand the market and how SUSE can add value.

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. With that said, I know you’re not here to listen to me, let’s get on with the real star of the episode, Melissa DiDonato, CEO of SUSE.

Melissa, it’s great to have you on the podcast today.

Melissa: Mike, thank you so much for having me.

Career Path To Leading SUSE?

Mike: Maybe before we get into the official questions, I’m sure many of our listeners are curious about your career path to becoming CEO of the world’s largest independent open-source company. What were some of the pivotal experiences that prepared you for this role?

Melissa: I feel like every role I’ve ever had has led me to become the CEO of SUSE. It’s really funny, it wasn’t any and particular spot or position or role that I had that led to being the CEO of SUSE. Last 20 years, I worked predominantly in my entire life with ERP and CRM, predominantly ERP companies, like IBM, Salesforce, SAP, just to name a few.


So, one might even questioned further, “Well, okay, so if you spent your whole life proprietary software, in companies, very big enterprises, like IBM and SAP, how did you find your way to SUSE?” And the past really helped me build the foundation for the future.

So, I have a unique experience and perspective for SUSE. I came in as a user. So, I started my career as an R3 developer, an SAP R/3 developer. So, I started as a coder, and I started creating SAP applications to sit on top of the first Linux systems. And the very first partnership we had 25 years ago was SAP and SUSE.

So, how did I get into technology in the first instance was on the recommendation of a mentor. A mentor I had at the time said, “Have you thought about getting into SAP? It’s really beginning to catch on.” And from that moment forward, I never left, so I’ve got more than 25-year history, in technology, starting out as a developer, with all BOP and Bases code to create applications to sit on top of SUSE.

Every move I’ve made throughout my career has been typically based on the recommendation insights or thought leadership of the people around me, particularly my mentors. So, my mentors have played a really, really big role in my past of which to create the future. And of course, like I say, coming into SUSE was a really unique journey. Having spent my entire career in proprietary software, now making my way into, from a user of open-source and SUSE specifically, into becoming the CEO of this great company. So, it’s been an interesting journey.

Initial Priorities

Mike: So, leading a 25-plus-year-old technology company is a daunting task for any business leader. But joining as a new team member, or maybe you could say an outsider, has both pluses and minuses. Why did you take this on, and coming from the outside, what were your first priorities for the business and culture, and how do you do take the reins to align the company with these new priorities?

Melissa: It’s a really good question. So, how does someone like me find their way in, and once I get in, how do I create some new momentum? When I did the analysis from the outside, when I was speaking to EQT about the role of being CEO of SUSE, I spent my time to do some research. I interviewed some members of the community, the open-source community, I interviewed some customers, some employees, I’ve interviewed customers that had left SUSE in favor of another technology. And never saying of course why I was asking them the questions I was asking, but I poked around quite a bit. And when I realized is that SUSE is at the cusp of historic shift, I really felt the movement of open-source now becoming a very critical part of any thriving enterprises, core business strategy.

When I looked at SUSE, it seemed like the power that enabled these mission-critical business operations, to surge, to grow, to deliver. So, I thought, “Okay, this is very, very interesting company. We will be well positioned to emerge as a clear leader, as this shift as well as because of the innovation and the products that we have to offer. The ability to — I guess power the digital transformation for our customers – and this was of course pre-coronavirus, but I saw the digital transformation root coming onto a main part of play for our customers.

The ability to deliver this digital transformation at our customers pace, but to make sure that we stood as an agile, enterprise-grade, open-source innovation across the enterprise Edge, Core, Cloud – that seemed to me to be something I really wanted to be part of.

And when I began to dig into the fans of SUSE, the community, it was extensive. And I think it was even more so recently with our recent news of our acquisition, people went wild over the fact that, you know, they watched SUSE, and supported SUSE, and we’re going to do anything for the innovation and the growth of our future.

So, then I looked at this company, 28-year SUSE has been around a world-class, engineering-led business, producing rock-solid IT infrastructure, with a huge amount of success. And I thought, “Well, what do I need to do as, you said, what were my priorities when I joined?” So, when I decided to join, then, what should I need to do?” I think when I joined last summer, it’s been — I just passed my one-year anniversary, Mike, so I’m more than 365 days old, and I looked at what areas do I want to impact immediately and first, and what are the areas I wanted to empower and enhance.

So, first for impact. I realized, when I sort of was talking about SUSE more and more, that our brand awareness did not correspond with our success. When I mentioned SUSE, I got a lot of, “Who???”, and I said, “Oh, the green chameleon.” And they said, “Oh, yes, of course.” But there was no connection. I felt it was really important to start amplifying the brand, to show just how successful we are, and how big, and how innovative, and how much of a thought leader we are in the industry.

So, to address this, we rebranded SUSE. We then had a platform to tell our story in a much, much better way. Our new brand, our new tagline, our new story is the power of many, and I think it’s important probably, Mike, for many of your listeners, because the power of many celebrates our open-source heritage, and showcases the power of community-led innovation.

And this rebrand has been a big part of who we are in the last six months. It took us some time to actually launch, but I believe wholeheartedly that the power of many really describes who we were, who we are, and who we will continue to be.

The second thing I wanted to focus on was growth and expansion. SUSE had, and has now ever more so ambitious growth targets. When I came on board, I announced that we would double our revenue in three years, partially by organic, partially by inorganic. And a large part of my first year would be on that, really ensuring that our organic strategy was enterprise-grade in way of sales and go-to-market, and that we had an inorganic growth strategy to execute on.

Within my first year, as you know, we announced our intent to acquire Rancher or Labs, which is the market leading, Enterprise Kubernetes management vendor. So, I think we’ve managed to take a couple of those boxes and we’ve had some incredible results. We ended our Q2 with more than 30% year-over-year growth. So, incredible big ambitions, but great success around growth and innovation and expansion. And then, I think lastly, I wanted to enhance SUSE’s focus much more so on our customers and our partners.

In my first 100 days, I don’t know if you read about this, but it got out quite a bit that in my first 100 days, I set out the target to meet 100 customers. During that time, I got to 97, I didn’t quite get to a 100, almost there, failed by three. But those meetings were absolutely pivotal and crucial in developing our near and mid-term strategy. We began to shift our entire go-to-market focus on customer success and creating for the very first time customers for life team, ensuring that we cared for our customers, we nurtured our customers, and literally created a customer relationship for life.

And I think the last bit is that I knew – we had talked about this, Mike, before – I knew that I wanted to enhance what SUSE’s culture already stood for. We have a very, very strong and unique culture that’s based on ethos originated in open source. We wanted to add to that culture, we wanted to contribute to the culture by mentoring, by having employee groups around diversity and inclusion, so we launched our very first mentoring group for employees. We’ve also launched women in technology, and we also launched, prior to SUSE, amongst many others, like GoGreen and loads of other programs, because we wanted to make sure that we embraced and enhanced and grew and depended upon this incredibly strong culture here at SUSE.

Message Sent By Rancher Acquisition Announcement?

Mike: In order to prepare for this interview, I listened to a talk from Nils Brauckmann, your predecessor, from SUSECON 2019, and he mentioned that SUSE was looking to acquire orchestration and management tools that sit above Kubernetes. And hindsight’s 2020. So, now I hear that, as we’re looking to buy Rancher, but now that the acquisition’s been announced, and can you help us understand the message that SUSE is sending to both the internal team and the world about your goals and aspirations?

Melissa: What Rancher did in the announcement with us is that we showed the world that we are relevant, that we want to create, modern, innovative technologies to deliver against and solve the problems against our customers’ business problems. And it really reinvigorated the spirit.

I mean, the people that came out of the woodwork and applauded about this acquisition was pretty incredible. I mean, it was a real following and a real uptake in SUSE and the interest in us and made us very, very relevant. I think what it’s done is it puts us on the map to solve real business problems that are customers, are depending upon us to help them solve.

And that’s what I learned in the first few months was that I had customers coming to me, constantly saying, “I need more from SUSE. I want more. I want more innovation, I want more modernization, I want you to help me modernize my legacy applications. I want you to modernize my infrastructure. I want you to start thinking about how you can help me accelerate my business, and how do I get on this digital transformation journey.

And together SUSE and Rancher do just that. We help our customers simplify first, and then what we help them do is to simplify and optimize their apps, their data, their environment, their infrastructure. And we’re really trying to make IT, non-stop IT reality for them, and they’re depending on that from us. The second that they kept asking us for is what our intended acquisition does. Does it help leverage the Cloud and bring their IT infrastructure, customers’ IT infrastructure into a modern computing world?

And a lot of our customers have come to us and said, “Well, how do I start? How do I modernize, where do I go?” And with Rancher together, that’s our ambition to help them modernize their legacy applications, utilizing containers, getting to the Cloud, and then being able to leverage edge technologies for the future.

Our customers want to achieve all the benefits from the Cloud, but they want to remain in control, and they want to remain open. And with Rancher and SUSE together, we can do that. We offer – well, soon – we’ll offer a platform to manage our customers’ different environments, as if they were one. And that’s really important for our customer base. Because having been in business for 28 years, you could probably imagine that a vast majority of our customers are what we call traditionalists, the kind of customers that have built a very stable, complex environment on-prem that are beginning now to depend on their partners and vendors to help them modernize. And that could be the Cloud, whether it’s hybrid or multi-cloud or whatever it may be, bit of on-prem, bit of Cloud, and we can help them do that.

And that’s our ambition with Rancher, to be able to together offer the digital transformation journey and be able to reap the benefits of the Cloud, while remaining in control. And what that does is, it helps our customers accelerate their business. And that’s what we’re all after. We’re after success in the end game for our customers.

We can help our customers, with Rancher together, accelerate our customers digital journey, our digital transformation, and help them scale, so they can get their products and services to the market faster. That’s the ambition of the two together.

Value Prop

Mike: So, when I read articles about SUSE, I almost always see Red Hat mentioned. What’s the plan to differentiate SUSE from Red Hat and other Linux distributions, like Ubuntu, or maybe I could say, what’s the value proposition for SUSE?

Melissa: You know, I get that question a lot, and I get – because SUSE is known, our success has been hugely around being a Linux distributor. As I mentioned earlier, and you’ve said a couple of times, Mike, that we are the largest independent open-source company in the world – that’s a differentiator in and of itself. I think that our customers want and need to transform their business via digital innovation. They can’t do it in the most expected but yet most unexpected way is now mainstream.

They understand that a flexible IT infrastructure, that is ready to support their transformation, their digital transformation, rapidly but yet securely, is going to be very key in a world that is, as we all know more now than ever, in constant change. I mean, year and a half ago, when I was looking around the world seeing an SAP, I never thought a year-and-a-half later I’d be the CEO of an open-source company that has navigated extraordinarily well through a pandemic.

The world is in constant change. And I think that constant change has driven, it’s exacerbated the need for our customers to not be locked into just one vendor, or one technology, or one direction, or one solution set, because that just limits their pass. It reduces the ability for them to have choice, and doesn’t allow them to preserve flexibility, and not as a big differentiator. When you’re talking about our competitors, our competitor, the one that you mentioned first is, they want to own the entire stack – that’s not our thesis.

In fact, we’ve supported our competitive technologies before, and with Rancher we will continue to do that. We will continue to be open and agnostic in a way of offering a broad set of portfolio, product portfolio that takes and combines industry-leading solutions across Core, Edge and Cloud, but not locking anyone in. And that is a really big differentiator for us, a really big differentiator for us.

And I think that, also knowing that our customers – having a differentiating IT infrastructure cannot be invented behind closed doors. And they need the best possible infrastructure, services support by – as I mentioned earlier – the power of many. And that’s where open source comes in. And we’re much more than it is a distributor. We’re much more an orchestrator of the power of many to deliver the most innovative solutions that open source can offer in the world.

And being the largest now independent open-source provider, we’re going to bring all of these technologies, all of this innovation, and all this true openness to bear, to be able to provide the most flexible solutions for our customers. And that is what really differentiates us from the marketplace.

How To Create An Enterprise Grade Sales Program?

Mike: I was looking at your resume on LinkedIn, and I noticed that you were Chief Revenue Officer at SAP/ ERP cloud. And I think many open-source companies underestimate the challenge of building a great sales organization – how’s the sales organization involved since you change? And do you have any advice for startups on how to think about building the sales team and sales processes?

Melissa: Yes, Mike. We’ve done a lot, specifically in the sales motion here at SUSE. So, in addition to being the CEO of SUSE, I also serve on the board. I’m the executive in residence at a venture fund called Notion Capital. And at Notion, although their startups have always asked the executives and residents like myself, to specialize in go-to-market, how do we scale, how do we create a sales organization, for not just scale and depth but high growth, and what kind of tidbits and ways we go to market to be really hyper focus on value, but also on customer success.

I do this quite a bit, and I like to think that I’m not just well-educated, but I do a lot of research on this topic of sales – how do we create a sales motion that can change dependent on where the motion originates. For example, is it an existing install customer? Is it partner-led? Is it indirect? Is it direct? Does the customer know anything about SUSE? Have they ever heard of SUSE before? Is it a net new brand, or someone we’ve sold to in the past but then lost?

Each one of these questions lead to a motion that will change also depending upon the solution and the complexity of the challenge and the problem we’re looking to solve. Every sales engagement, every communication with our customers always needs to start first with what problem and what challenge are we looking to solve for our customer.

So, sales motion changed a lot since I started. We invited, first step, our sales organization to be bold, to think differently, to think big, to go after the largest and most complex digital transformation challenges that our customers were looking to solve, and to inspire our customers to solve those challenges with SUSE.

This is why we’re much more value-focused, we’re much more interested on why our customers need to do something, why they want to do something and the why is really important here, because we can only provide our best guidance when we understand the why. In some cases, for example, this means we won’t pursue an opportunity. If I don’t have the solutions and the offerings to be able to solve the problem for the customer, then we’re not the best fit. And sometimes we don’t.

But it also means that we need to spend a significant amount of time doing discovery work. So, understanding why our customers are where they are, what they want to achieve and what are the consequences of doing so.

And it’s much more hyper-focused on the consultative side of understanding our customers that it is driving just a drop in sales solution. Today, we’re very point of view driven – I guess I could say point of view driven – meaning that we’ve developed through research customer experience, customer visits, understanding of what works and what does not. So, it’s really developed a nice point of view that allows us to proactively challenge our customers on their journey. And then be able to be a trusted advisor in which to add value to that journey.

We involve our account executives throughout every sales engagement, every sales motion, every sales call, obviously it’s important for SUSE, that each of our execs in the field can bring back our customers and partners viewpoints. So, even when we have an indirect sale, we include an account executive. And to collect the data, to understand the data, to understand the viewpoints of our customers, so we can learn and build a database of experience to build on that for the future. And I think, not just for me, but I think for the world, we had hundreds of people in field sales in January.

We have hundreds of people in digital sales right now – we’ve all moved to a much more digitally enabled sales cycle than we’ve ever have in the past, ever. I mean, in 25 years, I’ve never seen anything become so digital so fast as sales has. And I think that’s kind of going dark.

When I look at a partner perspective, so a big part of our business, I think you know Mike’s channels, when I look at that sales motion and that go-to-market, it’s a little — you know, we’re also changing how we work, how do we work with the traditional hardware vendor. Or how do we work now with the new cloud service providers or the MSPs or a partner who wants to use SUSE as an embedded solution.

Those have been a very, very big part of our success. Each of these partner types are critical to our go-to-market and really truly a testimony to our ability to create an ecosystem that significant but very robust. How we go to market with them has changed. We look for ways now instead to co-innovate, to co-market and to co-invest. So, the three “co’s.” And we do that because we feel that one plus one plus one is 50. We feel that if we can co-innovate, co-market, co-invest with our partners, we will get to the best amount of success for our customers.

And just like any even customer engagement, we put a significant amount of effort into understanding our partners as well, collecting the data, what problems they’re seeing, what solutions they are trying to solve and sell and add value and be relevant. And I think that’s probably — that’s a lot of advice I’ve now given to a lot of our startups in the community that want to create an enterprise-grade sales team, go-to-market function.

You know, at the end of the day, if we are just focused and honing in on the most important thing is customer success and helping them solve their business problems, everything else will follow.

Market Segmentation

Mike: SUSE is in a very horizontal, global market. From a tactical sales and marketing perspective, do you segment the market or how do you think about breaking that horizontal market apart?

Melissa: We didn’t segment much before I came, but since I’ve come, we’ve now really got into great detail about segmenting our customers and prospects by industry and by size. So, we’ve had delineation between what’s Tier 1 enterprise, upper mid-market, lower mid-market, and SMB. And it’s really important, you know, being able to communicate with our customers, it’s really important to understanding and predicting what their issues are going to be, because obviously that varies by size.

Mike: And does that drive the way that you interact with these customers? Like, I know it’s hard to serve the SMB market, you need a more automated way of interacting, and what’s the impact of that being on sort of the customer relationship?

Melissa: Oh, my god, I love to say that, you know, today was the same as it was six months ago, but you’re right, I mean servicing an SMB in an old world was predominantly digital. The way in which we service, I was mostly online, you know, in fact, a lot of SMBs are not necessarily in an office all the time, and they’re out and they’re remote in different locations, so the ability to get to them physically was even harder.

But now, the world’s changed, now everyone’s a digital sales engine. So, even our Tier 1 Enterprise customers, the last six months we’ve been servicing them through a lot of online video calls and through the telephone and other means, but, yeah, the way we service them is very different. In the old world, Tier 1 was high touch and SMB was low. And now, everything is high touched, but only a digital high touch.

Pricing

Mike: Pricing is really hard for open-source companies. I think it’s hard for all companies actually, do you participate in pricing strategy as CEO? And do you have any advice on how to build a process to find the right price, especially as the business environment is changing?

Melissa: So, one might think sometimes that getting involved in pricing is too detailed for a CEO, but I’ve been called worse where I get into the details of the business and I think, yes I do get engaged, and yes, I do ask a lot of questions. I want to be able to have the best value for my customers at the best price, and that doesn’t mean cheap. What it means is that I want to be able to sell for value, and that’s going to be based on the value of my customers see on price. It kind of goes hand in glove.

And pricing is an important topic, particularly right now when you look around IT industry, when you look at open source. I’d first say, how do we evolve pricing as the business environment changes, how do we set the right price. So, I think the first thing is that we have to price the value always, as I mentioned. The second thing is, we want to understand and be very clear about the problems that we’re looking to solve. So, what are the business challenges? Some customers are willing to pay for things like support, and that could be a main revenue stream for some open-source businesses.

And for others, they want to get everything for free, they don’t feel like they should have to pay. Or that it is not warranted. The value of paying for supporters is not worthy, it’s not warranted. And the case like SUSE, where so many of our customers are running mission-critical applications, the support, and the QA that we provide, and the assurance policy that we provide of the software we deliver is critical. It’s mission critical. And we look at that kind of problem, and what an outage can cause, and how complex it could be. There’s value there. So, the complexity of your product solves a problem, and how severe, and how big that problem is on behalf of your customers. And the market will be very, very key to a pricing strategy.

And that’s all of course based on, we said earlier, which is research. Research is key – understanding third parties, having customer advisory boards, testing our pricing with different customers’ and partners’ segments – that works. And, in fact, you know, we’ve got a big business in Latin America, where it’s being very, very impacted by currency changes. The currency in the pricing strategy you have for certain countries, and coupled again with emerging markets, could be different. So, you know, the research and understanding the customers’ business problems, what you’re looking to solve, what’s going on in the industry, the economy, and the market is all going to formulate the basis for a very strong pricing strategy and approach.

And one point I do want to call out is that pricing is also very much about being confident of who your company is and what your company does. Pricing gives value. The value it derives, and sticking to the beliefs and the nature of the value that you deliver is going to be linked to your pricing, because at the end of the day, customers will pay, like they do for SUSE, like they do for Rancher. They’re going to pay for a solution, for a technology that reduces costs, optimize performance, and improves their time-to-market to be able to service their customers better. Reducing risk is something that all customers are willing to pay for, and that insurance policy is very, very valuable.

How To Prioritize R&D?

Mike: A diverse group of engineers must have a ton of good ideas – how do you prioritize your R&D investments, and how do you balance investments in open-source projects versus investments in software that you monetize directly?

Melissa: So, this is another good one. And being a newbie, I’m only 365 days in into open source, or 370 days, and now I guess to open source, I’m coming from proprietary, and I think, “Oh, my goodness me! How do you balance, how do you prioritize the investments in open source, what the community wants, what your customer wants, how do you invest, where do you invest, and how do you prioritize that from an R&D perspective?”

And we get so many incredible ideas from engineers and from various teams across SUSE. We really live and breathe this culture of collaboration, not just outside the community, but in an extended community inside of our company. We also get loads of ideas from our — what’s now become over 28 years a very rich and vibrant partner ecosystem. We get loads of ideas from our customers via the customer executive councils.

And of course, we depend heavily on all of our communities, in the open-source community. So, we have several mechanisms in place to encourage, to fuel, to really get new ideas going, regardless of where they come from. Because we have many sources. But then, how do we prioritize and get these ideas? The ideas that have potential.

First, for us, go into a Convocation center, where the prototypes are developed and tested. So, we gather, collect and pull together all of these incredible ideas across all of our main areas, ecosystem, customers, partners, communities, developers, engineers, and we put them into a prototyping system and then test it.

In terms of R&D , because you asked for about R&D as well, Mike, we prioritize our investments in innovation, specifically in innovation that matters. We focus first on where we can create and enable, a concrete value for our customers that they couldn’t get before. So, thanks to new technologies or bridging existing technologies and new ways. So, that’s really important from a priority perspective.

This can also be said as well for innovation related to the operational or support improvements that we deliver, documentation and trainings and services, just give you a few. As we think about investments, we’re really fortunate in that we do not have to balance open-source investments with what we monetize. By nature, all of our software is open source, everything is based on open source. So, the balance for us occurs where and how and when and what we contribute to the open-source community.

For instance, how we select and engage in a specific project or technology is really where our balance comes in. And in SUSE, we focus on contributing to the projects that we feel will solve real-life IT needs and real-life IT problems for our Enterprise customers. Because we always got our customers’ needs and insight in the end.

Diversity

Mike: The list of female CEOs of open-source software companies, and that you can really say of tech companies in general is pretty short. What can we do as an industry to enable more gender diversity? And can open-source companies play a more prominent role?

Melissa: There’s no better industry in the world than to be diverse and inclusive than open source. There’s no better industry. This is the most inclusive, most collaborative, most open industry or – being IT – a sub-segment of IT being open source. I think what’s happening, the overall socio-economic environment is going to have wide-ranging impacts in the way we work and live, and not just gender diversity, but true openness, true collaboration, truly be inclusive.

I’ve always tried to do my part to affect change and drive impact in the world around me, but I mean, I’m bringing this into perspective in every role I do, and here at SUSE, as a CEO, I get a little bit of a bigger, maybe broader, maybe louder platform, but it’s certainly no different. I’ve gone on a career-long mission to ensure that technology is – which obviously has been traditionally male-dominated – becomes as inclusive and diverse as we possibly can. In fact, as I mentioned earlier, I was only one of the very, very small handful of female software developers at my first job.

Women – can you believe it, we’re even encouraged not to wear trousers, pants suits, we had to look like a woman back then – I’m not that old, by the way – so, if you look at my picture hopefully I look young, but I’m not even that old. But with that said, you know, I echoe your point that companies need to have diversity and inclusion at every level of their organization.

And every level, it needs to be executive leadership but down to the very corner of the company. It’s not just about enhancing performance and innovation. And of course, making your workplace attracted to top talent, but being diverse and inclusive also ensures and assures employees that they’re valued and that their voices can be heard. Businesses that recruit a more diverse workforce by getting open-source technology into the hands of students as an example is a great way to start building and fostering a talent pipeline.

So, at SUSE, we’ve got an academic program, it’s tripled in size – I’m very proud, very, very proud – I’m tripled in size, year over year, growing to include over 800 academic institutions globally, and there are students in the program over 71 countries. We have main low-resource areas of priority, focusing on places like Africa, where I spent some time, India as well, and I was trying to equip students everywhere, of all genders, with free tools and the necessary training to be successful in tech.
The SUSE academic program is just one example of the vast array of training courses we offer, virtual labs, curriculums, etc. in the latest open-source technologies delivered by SUSE, and that’s no cost at all for the academic community.

So, what we’ve tried to do with training, with certification, with extending the reach, it’s to be role model. I live by the thesis – you can’t be what you can’t see. There’s this thing called birds of a feather, and what we live to do here at SUSE is to stand up, to be visible, to be present. Just show the world what true innovation, coupled with diversity and inclusion can mean, not just for open source, but for the world at large.

And I think the beauty of open-source is what it does is, it breaks down barriers and breaks down gender, extends across every bit of geography gender, political affiliation, life experience – we are the borderless industry in every way. In that same spirit, SUSE will always celebrate openness and diversity. We embrace all principles of diversity and not just gender, but diversity of thought, diversity of experience, diversity of leadership of options and innovation.

And if we want to live this mantra of growing, of being, of open, of openness, of diversity and inclusion, every single way, inside and outside of SUSE, and we hope that we can get back to our open-source community, to encourage more women coming into the industry into open source and to be much more inclusive.

Advice For Open Source Founders?

Mike: So, the last question. And thank you for being so generous with your time.  We’re running a tad over, but I promised this is the last question. I guess, putting on your entrepreneur hat more than your SUSE CEO hat, do you have any advice for entrepreneurs who are launching a business around an open-source software product?

Melissa: I know we’ve gone over. I get quite enthusiastic, Mike. I’m sorry, I’m going to make this one quick. So, entrepreneurs, you ask for advice around entrepreneurs that want to launch a business around open source. So, first and foremost, as I started out, the very first question that you asked me, and I’m going to end on the same note, and that’s, first and foremost fundamental – your trust. Nearly every career move I’ve made, and has been either on the advice of a mentor or in concert was discussing with my mentor, and I’ve had various mentors, I haven’t had the same one for the last 25 years, but mentorship and sponsorship are not just crucial for starting and growing a business, but they also play a hugely prominent role in tackling the lack of diversity in tech. We just talked about, by providing support and advocacy and highlighting different career paths and growth opportunities for everyone across the industry. It’s really important to find the right sponsorship, the right mentors early on. I recommend finding a couple of mentors, diverse backgrounds, diverse industries.

If you’re in tech, finding someone for finance is a really interesting perspective because really, really well-rounded views. Secondly, I’d make sure that you build meaningful relationships. I’ve realized this is a very, very, very small industry. The tech industry is about relationships just as much as it is about skills, if not more. And depending upon those relationships throughout the lifetime of your journey is going to be really important. I think last, build a strong trusted network that’s open, collaborative, inclusive, and then, be the person that you can trust yourself. That would be my last bit of advice.

Closing

Mike: Melissa, thank you so much for sharing all this wisdom and experience with us today.

Melissa: Thank you so much for having me, and thank you again for showing so much interest in SUSE, and constantly being an advocate for us in open source. We’re very grateful to you, Mike. Thank you so much.

Mike: Well, there’s so much to unpack there. You might have to listen to this again and take notes. Thanks to the SUSE team for all the help scheduling and getting this episode to the finish line. Audio editing by Ines Cetenji. Transcription and episode website by Marina Andjelkovic. Cool graphics by Kemal Bhattacharjee. Music from Brooke For Free, Chris Zabriskie and Lee Rosevere.

Next week, we have our first podcast from India. Don’t miss Rajoshi Ghosh, co-founder of Hasura. It’s a really fascinating company that has created a GraphQL interface for your existing data. Until next time, stay safe and thanks for listening.

Episode 51: Cloud Native Agility, Reliability and Stability with Weaveworks CTO Cornelia Davis

Interview with Cornelia Davis, CTO of Weaveworks, a leader in the cloud native infrastructure open source software ecosystem.