podcast

Episode 42: EnterpriseDB, Collaborating with the community to make Postgres enterprise ready, with Ed Boyajian, CEO

Ed Boyajian, CEO joined EnterpriseDB and helped it pivot from a small organization, to one of the leading Postgres database companies. The company has figured out how to run a profitable business, while embracing and respecting the community and open development process that has formed around Postres for more then two decades.

Episode 41: Apollo GraphQL, revolutionizing how developers write modern applications, with Geoff Schmidt, CEO and Co-Founder

Geoff Schmidt, CEO and Co-Founder of Apollo GraphQL, says you don’t get to pick your business model, you get to pick your problem. As part of the team who authored one of the most popular monolithic JavaScript rapid application development frameworks, MeteorJS, Geoff describes how they applied their experience to address an even bigger challenge–how to build more flexible backend data services.

Episode 40: Pivotal, enabling enterprises to manage a unified multi-cloud software infrastructure with James Watters, SVP Products

James Watters, SVP, Products at Pivotal Software, is a veteran of the unix and open source software business. With a broad breadth of products, including Java Spring and many other essential tools for developers, Pivotal has built a business of enormous scale in record time.

Intro

Michael Schwartz: Hello, and welcome to Open Source Underdogs. I’m your host Mike Schwartz, and this is episode 40 with James Watters, SVP of Products at Pivotal.

Pivotal is probably best known for the success of Spring, the most popular way for developers to write Java applications, but they built a great business around the Pivotal platform, which enables large businesses to manage a unified, multi-cloud software infrastructure.

Pivotal is a little different than your typical open-source startup. Spun out of EMC and VMware in 2012, and IPO in 2018, and shortly before I recorded this episode in August of 2019, VMware announced the definitive agreement to acquire Pivotal, a combination that’s expected to close in 2020.

James makes the case that open source is winning because it’s innovative feature-rich and enterprise-ready. He has a deep understanding of both the technical and business mechanic that make open-source companies tech. I’m sure you’ll enjoy this interview, so without further ado, here we go.

Pivotal Background

Michael Schwartz: James, thank you so much for joining the podcast today.

James Watters: Great to be here, Mike. Hi.

Michael Schwartz: So, you were trying Pivotal in 2012 when it was formed, and for the listeners who don’t know the backstory, maybe you could just drive a little bit about how that came about, and perhaps about how it’s coming full circle to some extent.

James Watters: I was fortunate enough to join a open-source research and development team at VMware in 2010, working on an open-source project named Cloud Foundry, and we didn’t really know what it would become as a business. It ended up, they decided to spin that out along with another open-source project called Spring Source, or Spring, into its own company, and that was one of the foundational product elements of the company called Pivotal.

Michael Schwartz: What’s your current role with pivotal?

James Watters: I’ve done a lot of product work at Pivotal. I’m currently SVP of Strategy, focused on new parts of our product. I’ve been focused on things like streaming, container-as-a-service, function-as-a-service, all the emerging areas of our product.

Size Of Product Team

Michael Schwartz: Just to give everyone a sense of the scale, could you give a rough estimate about how many product managers are Pivotal, and the total size of the product team?

James Watters: It’s pretty expensive. There’s hundreds and hundreds of engineers that work on the platform at Pivotal, and I would say 50 full-time product people working and supporting them.

How The Product Management Has Changed In The Last 15 Years

Michael Schwartz: When you were at Sun a while back, you were a product manager of Solaris, which is a pretty epic assignment for those of us geeks who revere Solaris. Since then I’m wondering, could you comment about a little bit about how has been an open-source project manager evolved? Like, what’s different now?

James Watters: That’s a great question. The cycle time was so different on Solaris. And that was an 1100-person engineering team. And then, on the kind of customer-facing product front, I think we were under 10 people. It was very much engineering organization, product provided a bit of input and amplification of key customer themes. We worked on often multi-year release cycle.

In the new world of open-source, the community input comes so fast. It’s a different release cadence. Our core platform PCF at Pivotal, we released every quarter. And that was a big mindset change for me versus some of the older world at Sun. It was just how fast everyone expected you to respond. It’s not uncommon now to meet with a client. And in a matter of weeks, we will have a feature changer update shipped to them.
It’s a completely much more iterative world of continuous delivery, both at the platform as well as what we’re trying to inspire our customers to do for their end users. So, I think that’s dramatically changed since.

How Smaller Organizations Can Improve Product Management

Michael Schwartz: If you’re not Sun, you are VMware Pivotal, but you are so much smaller. Do you have any suggestions for some of the little things that you can do, or that it open-source company might do around product management?

James Watters: I think that’s really opening a question, and I don’t want to speak conclusively on it, but I think what I’d say is, there’s kind of two ways of coming at it. And my specialty is always being understanding the enterprise organization that the product fits into.

There was a point in our journey, where we felt adding additional features around security would probably be neutral to the developer audience that was using the platform, but what actually bring like the chief security officer and her team deeper into the conversation.

Suddenly, we approached a few banks, and we said, “What if we could rebuild this entire platform infrastructure every day for security?” And we had a really brilliant product person at the time named Justin Smith, who let this initiative to articulate the idea of the much more ephemeral approach to the platform.

I think the reason I mention this is, you could have gone deeper on just developer experience, but by finding that other constituent in an enterprise that come to the negotiating table around why we’re giving money to this company, that really changed the game for us and a few clients, because the chief security officer was now also an advocate.

I think it’s challenging you doing open-source products because you might get a lot of feedback from your immediate community and immediate users. But in order to sell the products to a larger organization, you need to think about articulating investments to a broader set of constituents.

Pivotal Products

Michael Schwartz: You mentioned PCF for Pivotal, Cloud Foundry. For those who don’t know, maybe you could just tell us a little bit about what that is, or also walk us through some of the other product offerings at Pivotal.

James Watters: I’ve been fortunate enough, Palmer at VMware hired couple of Google engineers in 2009-10, to come build this platform out. It was really like what you might call the Cloud Native platform world today.

At the time, there was no such thing as container-as-a-service, and at the application level, there really was no micro-services, and continuous delivery was sort of a very radical idea of enterprise. It was sort of the first platform built with the container first design, built to enable continuous delivery of things that look more like micro-services than monolithic applications.

And kind of was the first investment in this Cloud Native space, in terms of application platform and culture, all coming together in a platform.

That was really what PCF did, and we were able to scale it from zero sales in 2012. Or the spin that was first contemplated to hundreds of millions of dollars in sales, and ultimately the background of a public company.

Market Segmentation

Michael Schwartz: Cloud Native is a broad horizontal market. Do you segment the market at all by vertical industry or use case?

James Watters: This is another thing around products. For me, products strategy is that I do think that vertical use cases are critical. I’ll give you two examples. In the banking world, there is a huge focus on Java, because it’s traditionally a Java-centric custom application world.

Banks were always willing to invest in the high-end applications that often was built by Java developers.

When I first started and till this day, banks are, I would say, the number one language in banking is Java. They are very security-centric, they operate in a highly-regulated world, and they tend to be very hybrid cloud. There’s very few banks that run public only.

They were a tremendous fit for the design of PCF, both from support for Spring Boot as well as its core security differentiation.

We absolutely thought of a lot about banking, insurance, regulated industries. Then, manufacturing and industrial was a little bit different space. There you had a lot of the IoT world, you had streaming data, you had a completely learning how to build software for the first time way of engaging, where industrial companies were just getting started on major software investments.

I definitely think about vertical segmentation. I think for anyone who’s contemplating a sort of customer first approach to product thinking, vertical segmentation is a good early model to take on.

How To Decide What To Open Source?

Michael Schwartz: Pivotal has 73 projects in GitHub, and I’m sure that there’s more in private repositories – how do you decide which projects to open-source?

James Watters: I think, by and large, we tend to be an open first-style company, as I mentioned on the Andreessen Horowitz podcast awhile back, I am an advocate for sometimes keeping the UI, closed-source can be a simple way of differentiating between the pure-community efforts and the final enterprise products. But in general, we’ve tilted towards open source first.

That’s also been a key part of our relationships, like I mentioned, with certain banks.

A lot of the core security infrastructure of the platform was all kept open source, because the banks felt more comfortable consuming a platform that was opened first, even in those core areas.

Value Prop

Michael Schwartz:  When you have a lot of projects, is it difficult to position the value proposition of the company?

James Watters: That’s a great question. If you think about how many projects you want to take on, like say, MongoDB is a fairly focused company. One core thing, Elastic are fairly focused company, but you get into the platform world, companies like HashiCorp are very successful at doing multiple projects. I think Pivotal is probably one of the broader breadth open source company is out there, certainly Red Hat has a pretty broad breadth. You hit a point where you become the platform provider of choice for their next generation of design, and actually the pressure comes to do more and more and more.

One of the biggest pressure points for us was always like, “Okay, we love this as an application platform. Now, provide us the whole universe of data services on the platform.” And so you have to achieve a certain critical mass to have the scale to invest like that.

But I do think that in enterprise segmentation, it’s powerful when you can start to have people accept the offerings you do have. And then, the biggest pressure is, “And now add this, so I can have one coherent approach. And I think that that’s something really important for open-source companies to think about it. Like, “Look at how Amazon operates. They are not a federation of hundreds of little hosting providers all coming together. They really have that sort of single point of interface to all of their abstractions.

I think that’s an interesting dynamic in the world right now. Open source is like, how broad you should go in your portfolio, do enterprise buyers favor that, is it better to be lower and single products – that’s something we discussed.

Pricing

Michael Schwartz: With a lot of products, containers, Cloud Native services, it seems like it’s harder than ever to figure out how do you price. There’s more things you could gate on and the more elasticity is given, I know us, at my company Gluu, a lot of challenges because of CPU that depends upon the time of day. Can you talk about the evolution of pricing, and did you get it right initially, or did you have to make some tactical adjustments along the way?

James Watters: I think that’s a great question. I think it’s never easy or straightforward, we made a decision that we were going to go after the largest thousand companies in the world predominantly. We were going to supply a lot of technical resources to them, to ensure that they were successful with our product, and very much be an outcomes-focused company.

I think we intended to price at the higher end of the market, and that was a very deliberate choice. And I think as we’re growing now, we’re seeing more opportunity to start to segment the offer. To have a more transactional approach, we reintroduced the container-as-a-service product that didn’t have as many features as the full platform, but was something that people were ready to pay for more on a transactional basis.

I think that there is this tension between the desire to have a broader platform versus to be more transactional, and that very much comes back to customer segmentation. I would think of pricing in terms of how transactional you want to be, and then what the customer really expects out of you to make them successful.

Like, what does customer success really look like – it has to be at the core of your pricing model. If the prices are really low, and they’re not successful, that’s actually not on either of your interest.

Competition

Michael Schwartz: Does Pivotal actually have competitors?

James Watters: I don’t think that Pivotal has a company that is assembled just like us. We have some unique assets, one of the reasons we were successful in enterprises is, we have the number one way that enterprises build apps in the Spring Boot.

So, when it comes to like how enterprises are building applications in the Spring Boot, it’s probably easily the number one, and it might be over 50% market share of net new enterprise applications today.

There’s not another company that has that. We also had a very big git, and we were owned by kind of the Dell VMware family of companies ultimately. So, we’ve always been able to go to market with them, but we really still did have to earn our own way. But we could get introductions.

I think all of those things came together in a way that allowed us to build a higher-end platform to focus on the top 2000 companies in the world, and to go make them successful, and to price and package accordingly.
I think one of the challenges right now for smaller open-source companies is, these cloud platforms that are open-source, they keep adding features that are pretty high rate. So, you may think that one day, you have a company, and the next day, that’s a feature of a cloud platform. And I think that’s attention.

Certainly, in the service mesh world, you see disruption of kind of traditional networking and API management, coming in the way that people are adopting a service mesh, etc. Is that a company, is that a platform – I think that’s a very dynamic part of the market right now. It’s pretty important, and I don’t talk about it too much, but I really do enjoy working on open-source projects because they can have a breadth of impact that’s pretty unimaginable to something that you have to commit a sales transaction and for software before someone can use it.
We have an asset at Pivotal, Spring Starters, and they’re the number one way that people get started with a new job application. And that’s start.spring.io. You start a new job project there.

Every two seconds a developer on average is going there to kick off a new project.

And the top three countries for it are China, United States, and India, but these are the kind of impacts that open-source can have worldwide, deep into developer impact that you can never do with closed-source only, enterprise sale only products.

I think just the unimaginable breadth that open source can get you in ubiquity, that it can get you in the modern world is stunning. So, that’s what I’m humbled to work on. I think the challenge is then like, “Well, how do you make sure that the largest 5,000 organizations in the world are contributing to that?” And that’s where I do have a passion for enterprise monetization of open source, and finding ways of partnering with those organizations, and packaging, and pricing things, such they feel that there’s good value. And partnering with these open-source companies and making them their most meaningful platform.

I think I’ve got there two minds, number one, open source is super important just from a long-term impact the world, it’s harder to work on projects, they can have a bigger one than open source ones.
And then there is the challenge of like, “Well then, how do you build the economic model around that when it’s so ubiquitous to begin with? That’s the kind of challenge that I’m taking on, and I’m humble to be able to work on open source for enterprises for that reason.

What Types Of Software Should Be Open Source?

Michael Schwartz: Do you think that certain types of software lend themselves to being open source?

James Watters: I would say that the developer workflow today – and that’s not my line but I like it – it starts with “Git clone.” And I think any saying, where a developer is initiating a project in this era, it better be either a really easy to use API, I think Stripe certainly has proven that, or, it better be something like start.spring.io. Or, git clone, something that a developer could just go grab in a permissionless kind of way.
And Adrian Cockroft at Netflix said that, back when he was at previous companies, there were these big architectural debates for months before a project would start. And that in Netflix you really implemented the running code talks. It’s all about running code. I think that that is the reason why open source is really powerful for anything having to do with developers.

And then, on the infrastructure level, open source has become the most profound way that large vendors collaborate. If you look what’s happening in the Kubernetes community, where you have every major public cloud contributing to Kubernetes, IBM acquiring Heptio to make major contributions to Kubernetes, in infrastructure, open source has the way that these, what you might have had standard bodies before, there’s sort of like a running code way that large vendors are collaborating. Both, in the end-user developer space as well as in the infrastructure space, open source had a huge impact.

But if you think those worlds are slightly different, the dynamics of start.spring.io, which is very end-developer focused versus the way that every public cloud is normalizing how they run Kubernetes are slightly different, they’re all open source but they have slightly different behaviors and attributes. And it’s kind of fascinating to see database companies like MongoDB a little bit different than the way that the Kubernetes community is operating.

Do Enterprises Care About Open Source?

Michael Schwartz: Do you think that customers actually care about open source? I mean, large enterprise customers?

James Watters: I think large enterprise customers absolutely have seen the tremendous benefits in just frankly the innovation velocity of open-source products. And I think the biggest change is that in the early days, open source was a cheaper version available for free of the enterprise products. That’s what I think it was especially hard to monetize.

If you’re just going to be the cheaper thing and the low-cost provider, and not the premium product, a lot of enterprises might look at that and say, “Hey, we’re an enterprise, we can afford to buy whatever we need. We just really want innovation leverage, like we want the best product.

But I think there’s a new whole category of products, or there’s only an open-source player that is creating it. Like PCF was the kind of first micro-services platform in the world for enterprises. And it was built a 100% open source. It was both the market leader in terms of features and the open play.

I think the open-source market is changed, where there is room to be both innovative, or the expectation is that they’re both innovative, higher-end, feature-rich as well as enterprise-ready – all of that is expected from open source today. I think that’s where the innovation is happening.

If you look – here’s an example – Amazon has a service Kinesis, which is how they were doing messaging, and it did a pipelines. And now they’ve switched that to a managed Kafka service. They had to do that because the innovation was really happening in the Kafka community in open source. Even on Amazon scale, they couldn’t keep up with it.

I really find that to be the best part of the market right now is that you can’t out-innovate the open-source players.

Cyclicality Of Centralization

Michael Schwartz: It seems like there’s sort of a cyclicality between centralization and decentralization. For example, a couple years ago, everyone was at full tilt towards “Go to the cloud.”, and now, it’s almost like with Kubernetes and other technologies – is there any shift away towards maybe bringing more of this type of functionality in-house, and does that help a company like Pivotal?

James Watters: When I talked to CIOs about this, I tried to help them deconstruct the current cloud market, and what I told them is, “Public cloud is not one thing. It’s really three different zones of features that you need to think about. The first is the commodity layer, which is, “Hey, I’m just buying virtual machines, networking disc, the basics, and that’s kind of where public cloud started.

There, you can use a platform like Kubernetes, and run those system resources in similar ways, if not identical ways, across public-private, hybrid multi-cloud. So, I think Kubernetes has done a tremendous job of making those system resources normalized across all the clouds.

Then, I think there is this emerging space within the Cloud Native community around the open-source developer focused projects that run on Kubernetes, like Kafka, like Spring Boot, really like Pivotal’s platform. That’s where the developer innovations come. That’s like the open developer innovation community, that’s number two.

And the number three is, they selectively are these managed services like Google Spanner, Google Machine Learning, or you might be ahead of the market, where there might not be an open play there yet, where Spanner requires dedicated fiber networks between data centers to make the database magic work. So, there are areas we are the managed cloud or head.

Our perspective is that innovation in the core, where you are really arming your developers, continues to happen in open source. Commoditization can be achieved through technologies like Kubernetes running in a normalized way across clouds.

And then, technologies, like the Open Service Broker, relay to buy these managed things. Long story short, I think what’s happening is, the CIO’s are getting smarter about deconstructing cloud from this monolithic idea of “I go all in one cloud.” to like, “How do I selectively use what’s best about each cloud?” I think open source is playing a huge part of that.

Should Open Source Be Less Expensive?

Michael Schwartz: You touched on this a little bit before, about how open-source software maybe should be cheaper. I think that there is a sort of perception for some reason that even though you get more rights with the license that the software should be less money – do you think that that is changing, or is that something that is an industry we need to work on with customers?

James Watters: I’m a maybe a contrarian here, my dream was always a very open product that generated a lot of value that enterprises were excited to invest in the platform partnership in. And, essentially, I don’t think that open source should have to have cut rates levels of investment into research and development vs. closed source.

My contrarian nature there says, “If you really have the right relationships with these customers, they’re going to be just as happy giving an open-source provider money as they are giving Oracle money.” I mean, if anything, I think that open-source partnerships are valued in a more profound way in the modern enterprise that might be even happier to give you more money than Oracle.

I do think that that something is happening. That also comes back to how these open-source companies engage with these large enterprises, are they focused on them, do they understand their vertical needs, do they put security first, are they able to measure the outcomes that are achieved with their platforms?

Closing Advice For Entrepreneurs

Michael Schwartz: Last question. Do you have any advice for entrepreneurs who are starting new ventures based on open-source software?

James Watters: I think my advice would be, if you really develop a community around your open source, you’re one of the luckiest people in the world. That’s a tremendous gift. Save and invest in that community, but also spend some time understanding how that technology fits into the value chain, in the largest thousand companies in the world, and investments they are making in technology.

Try to balance the needs of the developer who’s approaching it from a ‘git clone, let’s get started’ perspective, as well as the more complex matrix or matrices of a large enterprise organization, and what they need across security, operating, certainty SLAs, etc. If you can get those two forces right, then I think you’ve got a remarkable opportunity. But I do think that monetization, and ultimately funding a great R&D team behind your open source project, takes a balance side towards both.

Closing

Michael Schwartz: James, thank you so much for taking your time today in this really pivotal moment in Pivotal’s trajectory.

James Watters: One last pivotal word joke.

Michael Schwartz: Thanks, James.

James Watters:  Thank you, Mike.

Michael Schwartz: Thanks to the Pivotal team for making this happen.

Transcription and episode audio can be found on opensourceunderdogs.com.

Music from Broke For Free and Chris Zabriskie.

Audio editing by Ines Cetenji. Production assistance by Natalie Lowe. Operational support from William Lowe. Transcription by Marina Andjelkovic.

The Twitter handle is @fosspodcast.

Next week, we have Geoff Schmidt, Co-Founder and CEO of Apollo GraphQL.

Until then, thanks for listening.

Episode 39: Rancher — A support-based business model that scales, with co-founder Shannon Williams

Shannon Williams, Co-Founder and VP Sales of Rancher lays out how a great team with deep domain knowledge can actively identify a product market fit in a crowded space, and emerge a winner. It’s an inspiring story of a plan perfectly executed. This is a MUST LISTEN episode of Underdogs!

Intro


Michael Schwartz: Hello, and welcome to the Open Source Underdogs podcast. I’m your host Mike Schwartz, and this is episode 39, with Shannon Williams, Co-Founder and VP Sales of Rancher.

Let’s go for a minute into the land of hypothetical. If I can ask all 38 previous podcast guests a question, “Is monetizing support a good idea?”, I think there would have been virtual consensus that support doesn’t scale. Except, Rancher is perfectly executing a business plan to do just that.

I hope you’ll enjoy this episode. Tweet your comments at @fosspodcast, and we will asynchronously discuss in the Twitter sphere, but for now, here we go with the interview. Shannon, thank you so much for joining us today.

Shannon Williams: Thanks for having me, Mike. It’s exciting to be here. Looking forward to our conversation.

Origins

Michael Schwartz:  Can you just fill us in a little bit about how Rancher got started and what was the mission?

Shannon Williams: We’ve been going now since 2014. In a lot of ways, it feels like we started before that, because my co-founder Sheng Liang, Will Chan and I, the three of us started another company called Cloud.com back in 2008. And, for all intents and purposes, we’ve been working together every day for 11 years now. That company was an early developer of open-source infrastructure-as-a-service software.

We built a product called CloudStack with the founding members of the OpenStack foundation. I had a really fun run there for about three years before being acquired by Citrix, and spending another three years at Citrix.

In our work on CloudStack, we learned a lot about, as you can imagine, managing infrastructure at scale, building out private clouds, helping a lot of large companies build public clouds. At the time, everything we were focused on was how do we deliver virtual machines to developers quickly from anywhere.

But over the course of working on a lot of private clouds, we noticed that we had a lot of conversations with people trying to figure out how to blend their on-premise infrastructure with this growing amount of cloud infrastructure.

One of our early customers was GoDaddy actually. They were looking at building a public cloud, and Darren Shepherd, our fourth co-founder of Rancher, was a Chief Architect there. We got to know Darren really well.

We started talking in 2014 about what could be done to bring together the on-premise infrastructure, the cloud infrastructure, into something that overlaid it all, and to really allow people to treat infrastructure like Cattle, like a disposable commodity. And Docker was just getting started, the concept of Containers was emerging, and we thought there was a really cool opportunity to look at leveraging that, to build out management tooling, infrastructure services, and kind of imagine the next generation of infrastructure management, which would hopefully enable people to do computing anywhere, with really consistent deployment experience, management experience, monitoring experience, all these types of things.

And so, Rancher was born. For almost 5 years now, we’ve been working on continuing that journey, how to build open-source products that are available to anyone, and really allow them to run workloads anywhere. So, that’s really where we came from.

Value Prop

Michael Schwartz: This market, it’s really diverse. There’s a lot of tools and tooling in this area. I’m wondering, what’s the exact value proposition for Rancher service?

Shannon Williams: Rancher is open-source software, we have a number of open-source projects but our most famous is called Rancher, and it really sits at the management playing around Kubernetes. Organizations use Rancher because they are deploying and managing more and more Kubernetes clusters.

Rancher provides distros of Kubernetes. We have one called RKE, which is a pretty typical, upstream distro, it’s really good for deployment, automation. Then, we have one that’s optimized for the Edge or other low-resource utilization called K3s.

We provide distros of Kubernetes to people that need to run Kubernetes, but Rancher itself actually sits above those distros, it’s the management client. What’s cool about it it’s really distro agnostic. It actually manages any Kubernetes. And by managing, what that means is an organization implements Rancher so that they can deploy and control, and then grant access to dozens or hundreds of Kubernetes clusters – some running in the clouds, some running as hosted services like GKE, and EKS, some running on premise, maybe on the Edge.

By bringing all those clusters together, what Rancher allows them to do is, dictate policy, control access, monitor availability, manage deployment of applications, manage catalogs, attach additional open-source services, like Prometheus for monitoring, or Fluentd for logging, or Istio for service match, and so, Rancher sits at that next. So, how do I manage Kubernetes everywhere according to my organization’s policies.

By doing that, it enables them to then really deliver their service reliably. For organizations, they think of Rancher as the Kubernetes platform, it’s Kubernetes as a service, it’s how they deploy apps and run anywhere.

Monetization

Michael Schwartz: The Rancher GitHub repository has 14,000 forks, which is really a lot. But there’s only around 60 something developers, which I could see is probably primarily being the people in your organization – can you talk about the relationship between the open-source project and the activity there, and the SaaS service?

Shannon Williams: Just to be clear, we don’t offer a SaaS service. Rancher is open-source software only. We only provide open-source software that people use, but what we sell is support for those open-source projects.

On any given day, there’s about 30,000 teams around the world running Rancher. Those teams, they may be a smaller group that’s deploying it for one application. There’s maybe somebody doing a Dev lab, or test lab, but of those about 1%, about 300 enterprise customers, these are companies that deploy Rancher, and whatever they are running on it, it’s critical to their business.

They contract with us to provide enterprise-grade support for Rancher, RKE, K3s, and really their whole Kubernetes stack up and down. By providing that Enterprise-grade support, what they get from us is the confidence to run really important workloads on the open-source Rancher, but what they like is that we don’t have your classic open-core only model, we don’t sell version that’s different to them. They just pay an annual support subscription, and they use it.

A year later, if they are no longer using it, they are not paying an annual support subscription. They can keep using the software, but they would be using it again without support.

Our model is geared around helping organizations that need support, get the best possible support in the world for Rancher, Kubernetes, Prometheus, and Istio, and all the pieces of technology that we deliver to them.

Why Open Source?

Michael Schwartz:  Has open-sourcing the code really made a meaningful contribution to the company?

Shannon Williams: It’s at the root of our success. By open-sourcing the code, we enabled a startup with relatively no name recognition obviously, to come into, in a lot of ways, it’s a very crowded market.

Think about the companies that are dealing with application management platform as-a-service. When we started, you can imagine Docker, Mesosphere, Red Hat, Pivotal, these companies were already out there. You know, Docker, in their sense with having released the Docker project, orchestration and building different types of management tools, and with enormously more funding than us, much, much, much bigger brand recognition teams.

We had to find a route to market with limited funds, we needed to let our product be our best piece of marketing, and so we took that approach. We believed in this for a long time. In our last company, we had a very similar approach. We made Rancher fully open source and free because we felt that it was the best way to get adoption, to plant seeds in organizations that would need this technology.

By putting it out there, we really bet on two things. We bet that people would like it, and that they would want to use it, but we also bet that this technology was crucial. And that at least a good chunk of people who use it would find value in getting support for it and find value in having SLAs that they can rely on for that application. And we’ve been thrilled. I mean, our company’s now almost 200 people, we’re more than doubling this year. In terms of revenue, it’s really worked out really well.

People really do love Rancher. It’s something that makes me really confident with the model as you have to believe in your engineers, you have to believe that products can be great. We also spend an enormous amount of investment of time working with our open-source community. We have a huge Slack community of thousands of users who come in with suggestions and ideas on how to make the product better. We get thousands of issues, and feature requests, and bugs filed by the community.

I don’t think we have more of a user community then of a contributor community. I love it because they come to us with real problems that need to be solved, and I identify them. Often, their use cases sometimes are pushing the boundaries that we may not see out of a Fortune 500 company that’s using Rancher. So, it all sort of pushes forward with the hopefully creating a great product for everyone.

More On Why Open Source…

Michael Schwartz: So, just to sort of dive a little deeper on that. If you made the software commercial tomorrow, do you think the 300 or so Enterprise customers, who are using the software, do they really care about it being open source? Or is it just a non-sequitur, or they just want the best software? So, if you made it commercial tomorrow, do you think that that would be bad from where you are today?

Shannon Williams: Yeah, I do. When I talk to organizations about our business model, they get really excited because there isn’t one of them which hasn’t been in a position of really limited leverage against their current vendors. Everybody has been staring at just massive renewal orders.

We closed, just this quarter, today is the end of our third quarter, and we closed three deals with organizations that are spending a lot with us, half a million a year in recurring revenue, for example, to support environments. And their frustration in some cases was platforms that they had built, PaaS platforms, where the cost had grown exponentially. And they just had no ability – even though these were all based on open-source, they weren’t themselves open source. I mean almost everything is based on something, open source at this point.

What people really like is, they like an open-source product, because they always have the option to leave it there, let it run, support it themselves, hire some engineers and figure it out. In the end, if you are running a proprietary tool, and you don’t pay, you have to yank it out of production. And that is impossible for most companies.

I think our business model, yes, some people would still buy a Rancher, and be fine with it, but I think a lot of the smartest CIO’s I talked to are really excited to see a company like us, that embraces open source for commercial purposes, provides really good support, and is committed to building open-source products. For us, it’s allowed us to grow faster than any other approach I’ve been able to come up with.

Pivot To K8S

Michael Schwartz: Seems like Rancher made an epic pivot towards Kubernetes at some point, I guess, fairly recently – what did you learn from that process?

Shannon Williams: Well, the hardest part about getting into any market is making bets, and then figuring out where they come down. Rancher started about the same time as Kubernetes. Right around 2014, Kubernetes was starting at the same time we started our company.

At the time, we really thought Docker and their Swarm and stuff were probably more likely to win out. They had so much momentum. But it only took a year to realize that Kubernetes was actually really well-built piece of code.

So, when we first started working with them, we were kind of thinking we would be managing Swarm clusters and Mesos clusters, and then, even before we launched our 1.0, we decided to support Kubernetes, because it was a really good piece of software.

So, we released our 1.0, our first product to the market in 2016, Rancher 1.0, at the time, if I was talking to them, I would have said something like, “You know, it seems like different companies are choosing different orchestration approaches to containers because they need different things from them.”

Some people want to scale really big, like Twitter. So, they’re using Mesos, other people really focused on the developer experience, and they’re choosing Swarm. And it wasn’t really clear yet that one standard was going to emerge, but what we started to see was some stability issues with some of the other orchestrators that we saw as a manager. It was like, “Ah, these things aren’t stable as I would have expected them to be.” What we found is that Kubernetes is really reliable.

So, as we imagined our business, and trying to support these technologies and helping companies implement them, we felt like it was safe to bet on something reliable, and that did require pivot that moved away from messaging, and product development had gone into supporting, we built our own thing, we had Swarm, we had Mesos, we weren’t really sure what orchestration was going to take off. But as we got more comfortable with Kubernetes, and luckily, we started working on it early, it made it really easy for us to honestly commit to something we liked.

By that point, by 2017, we were all in on Kubernetes building on that. And since then, we already had a lot of people using it in our 1.0 product, we also had a really nice base installed, we didn’t just lose.

So, a lot of times, you have a pivot, and it means almost starting from scratch. But actually, we didn’t really lose hardly anyone because it was very much in line with the direction that most of our customers wanted to go as well. Even if they maybe chose a different orchestrator, they also saw the market going this way, so they were really, really appreciative that we gave them a path to get to Kubernetes off of maybe something else they had chosen when the market was still a lot less clear.

We found that that wasn’t nearly as big a problem. Now, what is hard in pivoting, especially, one of the things we built was our own orchestrator called Cattle, and one of the hardest things was actually convincing our own engineers that the Kubernetes was actually superior to what we had developed ourselves.

That’s a hard thing to do because no matter what, if you built something, you’d always love it. And at the same time, in an early market like we were in, lots of people loved the thing we built, a lot of people telling us, “Hey, we really like this Cattle. It’s really good and you should just keep improving that.”

But as an entrepreneur trying to build a business, you have to be really, really honest with yourself, and you have to really look at all the signals, not just the ones that maybe are giving you the positives you want to see.

All the signals told Sheng, and I, and Will, and Darren, that we needed to really focus our business on solving the problem that we thought most organizations were going to have. And that was, how to take Kubernetes to scale, how to bring together a really complex ecosystem around it, how to build a platform that would work.

That meant really having long conversations with our engineers, convincing them if they weren’t excited about this, that maybe there are other things they could work on in our team and finding the team focused on doing this.

It worked out great, but it was not trivial. We have a small team, I can only imagine when you see big companies today trying to pivot to Kubernetes, you’ve got years and years of customers install base, and how difficult that might be for them.

Pricing

Michael Schwartz: Great. It takes a lot of leadership. Most sizable organizations are using Containers today, so if you can sell to anyone, it becomes sort of challenging, so who do you sell to? I’m wondering, do you segment the market at all?

Shannon Williams: One of the nice things about open source is, it has allowed us to, give an idea most, I would say the 300 Enterprise customers, like every quarter now we’re closing about 50 new customers. Every quarter we are closing, we look at what the source of those are. I would say 30 of the 50 came from open-source Rancher users.

They started with open source, they used it at a business-unit level, or line-of-business level, and it became important to them, and they needed support. Those deals, they are not very competitive, they’ve already kind of looked at Rancher, they have a relatively short sale cycle, they’ve done the proof-of-concept – we don’t have to go in and prove that Rancher is the right solution for them.

What we found is that we don’t really need to segment that. The product pricing was probably the most important thing to segment. We did find that with such a huge install base, one of the mistakes we couldn’t do is, we couldn’t support everyone for free, for a small amount of money. We needed to kind of keep a relatively medium-sized bar, to ensure that people who needed support had to make an investment to get it.

For example, we could have gone with a lot of SaaS models, $10 a month or something like that, but the reality is, infrastructure and Containers, Kubernetes – these are all really complex. The support is quite real. We provide a lot of advice, a lot of architectural help with these organizations doing it. So, there was a real risk that we would price the product so low, and that we would then be trying to do this for lots of companies with very different levels of technical skills.

I’d say, the closest thing we came to segmenting the market was providing a lot of free open-source support for people who are trying to figure it out themselves, but then, charging a reasonably significant fee to come in and get support. Our customers had to invest tens of thousands of dollars on an annual basis to get support with us.

By doing that, it allowed us to work with companies that really valued this. We’re investing their time and the money into making it successful. That was really the best qualifier. It allowed us to focus on teams that really could help us grow the business at the same time.

We’ve seen some industries become really big with Rancher, but it’s more just a sign of who uses Containers. It’s companies, and certainly the internet, and the technology industry, but there’s a lot of financial services, companies, fintech companies, biotech companies, universities, research organizations, we’re seeing adoption in government and military use cases. It’s really broad now.

Retail, Edge’s driving, all sorts of interesting use cases, oil and gas, all sorts of interesting use cases in manufacturing, automotive – just lots of cool things that people start to imagine, a model where Kubernetes becomes this grand unifying theory for computer, where it runs everywhere. It runs in their single node, base station, it runs out in the windmill farms, it runs in Chick-fil-A shops, it runs in factories, it runs on cruise ships, it runs in data centers, it runs in the cloud. It’s a really exciting time to be working on tech, I would definitely say that.

Pricing To Value Ratio

Michael Schwartz: Normally, it’s really hard to get pricing right. Did you have to pivot your pricing model a couple of times? Or how was your experience like, figuring out what are the right price points?

Shannon Williams: Oh, man, that is a good one. We learned a lot from our last company. I made every mistake you can make last time. This time, we definitely had to pivot a little bit to be quite sure what the right element was to scale on with the number of clusters, or containers, or nodes, or CPUs, or things like that, but we decided pretty early on that the size of the implementation was probably a good way to judge how the cost should change from a small deployment to a large deployment, the number of hosts and servers, things like that.

Actually, I would say we learned a lot, we’re fortunate, that were a lot of indicators from the market, as people talked to us I would say. Your first 10 – 20 customers give you a lot of feedback on pricing, whether you want it or not.

Usually, I think most people price to low, just by nature. We all want to just make it both amazing and cheap prices. Like, who wouldn’t love this thing? It’s the best and it’s the cheapest. But you have to be realistic about what it takes to fund a business, what it’s going to take to build a profit, and what you can do with those engineers you can hire, and then you have to convince people of the value. It can be tough.

I remember I walked away from a lot of deals in open source. I just said, “I’m sorry. I totally appreciate that you’re telling me you could use the software for free, so you couldn’t possibly pay me more than $10,000 or $20,000. But if I did that, I wouldn’t be able to build a business, I wouldn’t be able to write open-source software, and I wouldn’t be able to give you the level of support you demand from your other enterprise software vendors. So, I’m sorry, we can’t do business with you.”

And sometimes they come back, sometimes they don’t, but being willing to walk away from deals – for our business model, it is absolutely critical to have to be able to do it. Otherwise, again, the car I’m selling you is available for free. You can take the same car with the exact same features, you’re not paying for a special version, it doesn’t have a better horn or better tires –it’s the exact same car. What I’m offering you is the confidence of working with me on it, and the world’s best support for that technology. If you don’t value those things, then, we can’t come to any business relationship between us.

Technology Partners

Michael Schwartz:  Have you used partners to help you deliver to customers, especially globally? Or are there any other business partners that have been important for you to build a business?

Shannon Williams: Yes, yes, yes, yes. Over and over again – yes. The critical partners for us have been really two big buckets. We have found that the other companies who are building critical technology for teams adopting containers. It’s a company that’s called Portworx that builds a really nice storage, and a company Aqua that builds great security, Sysdig who creates monitoring, Gitlab who does really cool tools for CI and Git deployment – all really commonly chosen by our customers.

But partnering with those companies, companies that fit into the same solution stack, we have been able to do two things: we’ve been able to build a much more credible solution for our Enterprise customers. And we’ve been able to align messaging and go-to-market together, and take maybe a couple of other organizations who are our size, venture-funded startups, and take our stories, and show them to larger organizations together.

And we would’ve done this through, we’d run online meetups, where our partners come and present to our users about their technology, and how they work with Rancher, and how they work with Kubernetes. That gives us a lot more credibility, and helps those company succeed, which helps the market grow because the market is vibrant. So, we invest a lot in partnering. We’ve also partnered really closely with the cloud providers.

We work really closely with Amazon, Google, and Microsoft in the U.S., and large providers around the world, to ensure that their implementation of Kubernetes works really well with Rancher. And that’s been fundamentally critical, especially because what we see is we see a market where, if you are in the cloud, you are probably going to use the cloud providers Kubernetes.

So, we want to make sure that we’re not trying to convince you to use Rancher’s Kubernetes on Google, take Google’s Kubernetes engine, which is great. Let us provide you with the common frameworks, whether using Google’s in Google, and Amazon’s in Amazon, on premise and Edge, or different types, everything is consistent, everything is managed the same way, everything is deployed, monitored, upgraded consistently. And you have a platform that really is this UberCloud we set out to build in the beginning anyways.

Integration Partners

Michael Schwartz: If a customer says that services aren’t enough, they want on-site engineers, they want sort of higher-level design consulting – do you do that as expert services, or do you work with delivery partners to do that?

Shannon Williams: We tend to work with delivery partners. We work really closely with both big and small delivery partners who had built expertise. In Rancher, we have a platinum partner program, which is made up of some amazing companies that have implemented Rancher for others multiple times, and really have deeper understanding often not just of our ecosystem.

So, companies like RoundTower, CloudOps, Readapt, Accenture. We work with quite a lot of the large multinational services companies. We work with different regions around the world. These companies, BoxBoat and other really good ones, these guys, they’re really staffed to provide ongoing services for organizations in a way that we’re not.

Like, we are great at coming in and giving you a ton of information about Rancher and helping your architect your Rancher deployment, but a lot of times, technology is only a chunk of the solution. The solution needs to include some transformation of how you do things, how you do DevOps, how to train all your developers around microservices, how they start thinking of some of these new service matches, and how they might get into solving business problems for your company.

We can point you in the right direction and help you with those things, but we’re very laser-focused on the Kubernetes platform. And these companies are much better than we are at providing the transformational experience around there. So, yeah, we very much partner, especially in those longer-term things.

What we have found as really critical is the actual investment of our own on customer success. I would say, one of the things that’s got a lot better as we’ve grown is, we’ve invested more and more in — I think it was like the first 90 days when an organization becomes a Rancher customer.

I think this is really important for open-source companies because if you are a SaaS provider and somebody’s using your product, you have a pretty good idea what they’re doing with it. But as an open-source software companies, especially ones that support that open-source software, organizations can have very different processes, they may have more or less mature implementations, they may or may not have built-in an HA deployment. And they’re coming to you to provide support. You really need to make sure they understand best practices, that you reviewed their deployments, you helped them understand how we recommend doing things.

We invest a lot more now in customer success than we did in the early days. When a customer comes on board, we really spend a lot of time going through their architecture, helping them make improvements that they will achieve their goals, whether it’s stability, multi-cloud implementations, or they might try to do something, there’s a lot of scale. And then, there might be something we’ve learned already that can help them. I would say customer success has been a big learning for us.

Net Retention

Michael Schwartz: Has that investment in customer success also translated into increased revenues per customer year-over-year, so they’re buying more, or other products, or other divisions?

Shannon Williams: Well, it’s still new enough that I wouldn’t say if I know how correlated those two things are, but we certainly believe they are. We are investing in it because our bet is helping a customer be successful, with even a departmental implementation or a single app deployment is going to pay dividends for both retention of that customer and that workload.

So, a year later, when they decide they want to renew that support they bought last year, they have a really good feeling that, “Yeah, that was a great investment. Partnering with these guys has been useful.”

But certainly that also works internally. As they use it, they seem to spread the word. I mean, we have seen over and over and over again the power of the success of a Rancher deployment spreading within a company.

Users love Rancher. It’s a user-oriented product. What’s so cool about a product that has 30,000 open-source users is, it says something about how usable it is. It’s like terraform, you use it, it’s pretty straightforward, you like it and you go, “Cool. This is easy. I can get this.” You tell your friend, “You should use terraform. It would help you do something.” It’s kind of same with Rancher.

If all those users are using it, they are clearly getting some value from it. When somebody in your company says, “Hey, use this.”, and you’ll probably benefit from it. And there’s no barrier. I don’t have to start by going and getting a license to try it. I can just use it. It tends to spread the same way. It’s just the word of mouth and the power of it kind of spreads.

So, we found that making them successful and making sure those early champions are well-armed to explain why they chose Rancher, and they got a really good implementation, they don’t get bitten by a bad config, or maybe not knowing the best practices, it helps us in the long run for sure.

Cloud Strip-Mining

Michael Schwartz: I’m sure you’ve been hearing about open-source strip-mining from large cloud vendors, but what I’m wondering is, do you think it would be good or bad if some mega cloud company offered a Rancher-based service?

Shannon Williams: I think it would be great personally. From our perspective, the value of these mega cloud providers is always tied into a big ecosystem that they’re trying to build around. What we find is that organizations want to live in those ecosystems, and leverage those ecosystems, but they know they’re not going to live in just one of them. So, they want lots of them. And the more that those ecosystems interact or work together, or do things that help them work together, the better off they are.

In so many ways, I think the strip-mining analogy is that it’s a rough analogy because, well, it’s true that some of these providers don’t put a lot back, and there’s definitely been some ugly competition between open source and commercial. For the most part, I think their relationship has actually been pretty beneficial, mutually beneficial between the cloud providers and the open-source software developers.

It’s often where it’s really struggling, where you‘ve seen it’s struggling is when organizations haven’t had a great business plan our route to market, or they haven’t been able to commercialize their own products. And then, all of a sudden, it gets embedded into something larger. And then, the only monetization of it happens in the cloud.

I think that’s where we see most of the problems. I think that’s going to continue. I think that that was happening before as well. You know, ideas are developed, but are never really taken to market fully or are not pushed into the market aggressively. Organizations build upon those something new, or something tangential, or something that accelerates them. And that is what ends up being the big success.

To me, that’s business. That’s something that’s going to happen in any space, whether it is open source or not. And, yes, in our world, people can take and build on it very easily, but that’s what you know you’re getting into when you’re starting an open-source software business. And if you don’t, you really should research a little bit more.

This is a knife that cuts in many ways, from a business perspective. And I certainly would look at the world, and I certainly wouldn’t call foul if that happened to an open-source project. I’ll give you a feel, in China, Rancher is incredibly popular.

From early days, my co-founder Chan grew up in China, and so, you have someone who can speak Chinese and talks about it in China – Rancher became really famous. We’ve had multiple times where startups have kind of emerged competing with us in the market, selling Rancher and providing support around it.

Our experience has been that that, as long as we continue to push forward the innovation and organizations really value what we do, they’re going to want to work with us. They are going to benefit from working with us.

As long as we keep pushing it forward and building the product better, that will continue to be the case. But you have to know what you’re getting into. I don’t feel like there should be a huge shock if you build an open-source product, and someone forks it, and does something cool with it, that’s kind of the idea.

When To Use Open Source

Michael Schwartz: Moving to slightly higher level, do you have any thoughts about when entrepreneurs should use the open-source development methodology to develop a commercial product?

Shannon Williams: For me, I think it’s about the product you’re trying to build, and what you think your route to market needs to be. If you’re entering a market that you think is pretty competitive, and has a lot of different products, and you know you’re going up against much more well-funded organizations than you, then, I think open source is a really, really important one to consider and to look at. Because it allows you to get adoption in what would otherwise be a really hard market.

If your only feedback is going to come from a handful of companies you can convince to POC you or pay for it early on, you are going to have a hard time building momentum. And you’re going to have a hard time having good conversations with users who either like or don’t like what you’re building.

To me, I don’t know, I’ve been building nothing but open source for 11 years, so it kind of feels to me like everyone should just build open source. I don’t find that it’s ever slowed down our monetization. It’s always been a benefit. But I certainly would say that if you’re building something that you think is transformational, that actually has a broad audience that will adopt it, open source should very much be what you’re considering.

If you’re building something that’s probably a service, and it’s going to be hosted, I think open source can be enabling capability, but I wouldn’t worry too much about the open-source side, I would just focus on building the SaaS platform product tool that you are building a cloud service.

Because I think in those cases, open source is less important than it is an on-premise software or fundamental software. You’ve seen with Docker, open-sourcing, and having an open source success is not by any means enough to guarantee a commercial business success, but it puts you in a position where you have a great chance to engage with users, listen to what they think is necessary. Next steps, what they’re excited about your platform for, your product for, and what they’re willing to pay for, and build on that.

Advice For Entrepreneurs

Michael Schwartz: Last question, any advice for new entrepreneurs starting a business around an open-source platform?

Shannon Williams: Of the four of us who started Rancher and started Cloud.com and everything, I’m the non-engineer. My role in the early time of building a company, I was considering my role then to be how to connect with users, like how to connect to people even before you have a product.

When we were in our first 6 months, our first year, I spent all day, every day, thinking about who are potential users could be, based on the direction we think we were heading, and reaching out to people, introducing myself and introducing the idea we’re building, and getting feedback.

You always have to be thinking about the next milestone of users, “My gosh, how do we possibly get to 10 companies using our product?”

And the only way I can ever found that works to get to 10 is to find them by hand. To think, “You know, I think this makes sense for somebody in that space.” I really believe that if you as a founder can’t explain your value proposition enough to get someone to sit down on the phone and talk to you about it, and maybe watch a demo.

Especially when you can tell them, “Hi, I’m Shannon. I’m one of the founders of this new startup called Rancher. We’re trying to solve this problem, and I thought it might apply to you guys. I really love your feedback. We are not trying to sell you anything, we just want your feedback on what we’re doing.”

If someone doesn’t want to talk to you with that pitch, you might be barking up the wrong tree with your idea. That initial response, if you can’t just explain what you’re trying to build to someone right away, and if you can’t get a meeting, it’s probably worth reflecting on what you’re doing, and maybe tweaking, and then trying some different approaches, trying some different messages.

Because if you can’t get a meeting, it’s going to be really hard to get a sell. It’s going to be really hard to get a user, it’s going to be really hard to convert them into a paying customer.

But if you explain to someone, most people love to talk to entrepreneurs starting companies, especially if they can really clearly communicate what it is they’re trying to solve. And that validation early on goes enormously towards then calling that person back in three months, and saying, “Hey, we got a first beta ready, would you like to take a look at it?” And getting those first 10 is hand-to-hand combat.

Really the first hundred is hand-to-hand connecting to people, showing them the product, showing them the value, and getting to use it. Every once in a while, you have these runaway crazy successes, where everyone’s like, “Oh, my gosh, I can’t believe – how did we live before this existed?” But most of the time, it doesn’t work like that. Most of the time, you have to connect, talk, demo, listen to the feedback, and go back and consider how far on or off your strategy you are.

Closing

Michael Schwartz: I said it was my last question, but now you just raised another question, and I can’t resist. Previously you mentioned that a lot of the leads for customers were from inbound, from customers who use the software, liked it, and then called you to purchase a support subscription. But 50 deals a quarter – that’s a lot of business. That’s really pretty stellar. And I’m wondering, what’s the right mix of inbound and outbound marketing sales to push for, or how do you balance that?

Shannon Williams: First step for all of this is find a real market. When you find a real market, things get a lot easier. Because you have to have something going on that’s causing people to look for a solution, they have to have a problem.

So, to your question, if I had my druthers, I’d have a 100% coming inbound, so everything coming inbound means that the market is actively looking for solutions. My brand is well enough known, we are the company they should at least talk to about this to get a demo. Ideally, it’s open-source, just download it, and install it, and try it, and see what you think.

I, from day one, believed in inbound as our goal. So, that meant, instead of spending a lot of our early dollars on advertising, for example, I spent almost everything we did, online communication to users. And that meant, oh, my goodness, we wrote dozens and dozens of pieces of content explaining how to use Containers, and Kubernetes, and Docker, to help people find us.

They may not be looking for Rancher, but they were looking to solve a problem. And so, we really tried to build a list of the lots of the problems they were trying to solve.

We hosted an online meet-up every month that grew to have thousands and thousands of people register every month. It was crazy. We just run them today – I just did one last week.

And what we said was, “Hey, come, it’ll be our smartest technical people. We will stay as long as you need. We’ll demo whatever it is we say we’re going to do. I won’t just show you a bunch of slides, we’re actually getting this code, we will teach you how to do it. And we will stay until every Kubernetes questions are answered.”

So, these things would run two hours, three hours, but they allowed people to cross hurdles, to learn how to build the CI/CD Stack on Kubernetes, or how to do monitoring on it, or how to deal with logging, or how to use containers and the cloud – whatever it was we were trying to solve that month, we really focused on it. It was really that. It was education, community, content that, coupled with early references that we built by hand, in that hand-to-hand phase, got the word out.

By continuing to invest in that, we were able to kind of sow so many seeds of open-source users that as they matured, and liked what they usd, they contacted us. The right mix for me is a 100% inbound from the open-source community. But what we did find was, as we grew, we started to run into bigger organizations. They have entrenched vendors.

All of a sudden, we might have won a line of business users, and then they just said, “Hey, we love this Rancher. We are going to use it for application A, B, and C.” But 80% of the company was using something else that they’ve maybe built themselves, or maybe they bought something, some other product a couple years ago to do PaaS, or something.

And so, because those organizations started to look and say, “Why aren’t you using this? Why are you using Rancher?”, we had to support them and show other people in the organization, “Well, actually, this isn’t the same. It’s different, and here’s why it’s different.” What we did find was there was longer Enterprise sales cycles, so we needed good high-quality sales people to work with bigger companies.

But the positive was, we found that those companies actually really appreciated that it was open source. And the fact that you already had one over, a group of people who really loved it internally, meant that you kind of solved, in a lot of cases, the biggest problems these IT teams were facing, which was, they were building stuff and no one was using it anyway because they were just going to the cloud, they were building something themselves.

So, when we could tie together, the IT organization, which is like doing everything they can to support forward-looking development while still being secure and still being cost-conscious. And teams that have usage and feel like they’ve got found something cool, it was just like made it for a much easier sales motion than your traditional either selling top-down or kind of getting some executive buy-in, and then hoping people use your product once it was brought in.

I don’t know, does that answer to your question, Mike? I kind of feel like I ramp up there.

Michael Schwartz: Yeah, that’s lots of great info. Shannon, thank you so much for joining us today, and being so honest with your answers.

Shannon Williams: Mike, it was my pleasure. Thanks for doing this. I love your idea of open source entrepreneurs just sharing and talking about what we do. I think it’s a phenomenal business model. It is a real transformation of the relationship between the developer of a really powerful software and the consumer of that software. So, it’s something I have enormous passion for.
Michael Schwartz: Best of luck with Rancher, and congratulations on all the success.

Shannon Williams: Thank you so much, Mike. You too. Have a great one.

Michael Schwartz: Thanks to the Rancher team for making this happen. Transcription and episode audio can be found on opensourceunderdogs.com. Music from Broke For Free and Chris Zabriskie. Audio editing by Ines Cetenji. Production assistance by Natalie Lowe. Operational support from William Lowe. Transcription by Marina Andjelkovic.

The Twitter handle is @fosspodcast. Rate us on iTunes if you like this episode.

Next week, we have James Waters, SVP of Product at Pivotal. Until then, thanks for listening.

Episode 38: npm Inc.– From Software Registry to Software Business, with Isaac Schlueter, Chief Open Technology Officer

Isaac Schlueter emerged as one of the most important leaders from the Javascript community. As Chief Open Technology Officer of npm Inc, the company behind the essential software registry, he has a bird’s eye view of what makes Javascript such a unique ecosystem. And his mission was also unique: to transform a free public utility into a viable enterprise software business. This episode was recorded in person at the Open Core Summit.

Transcript

Intro



Michael Schwartz: Welcome back to Open Source Underdogs. I’m your host, Mike Schwartz, and this is episode 38, the last in-person interview recorded at the Open Core Summit. Our guest is Isaac Schlueter, CEO of npm Inc.

Many programming languages have a central software registry, but the JavaScript npm Registry is unique. It’s the biggest and the busiest by far. For example, it has around four times the number of modules as a number two registry, which is Maven for Java.

If you want to learn more about npm, Isaac was a guest on Founders Talk Episode 61. And for an interesting perspective on the npm ecosystem, you might want to listen to Changelog Episode 355 – it’s an interview with C.J. Silverio, as a former CTO of npm Inc. She provides an interesting perspective on the economics and the technical challenges of running the world’s largest package registry.

I hope you enjoy this episode. And if you like it or you’d like to start a discussion, tweet at us. Our Twitter handle is @fosspodcast.

So, without further delay, onward with the interview. Isaac, thank you so much for joining us today.

Isaac Schlueter: Hey, happy to be here.

What Is Npm?

Michael Schwartz: Some business people listening to this podcast might not know what npm is or what it does – can you give a really quick explanation?

Isaac Schlueter: Sure, this is my very fast 50-cent tour. Basically, npm is a way for JavaScript developers to share modules of JavaScript code. So, if you have some reusable function, something that you’re using in a bunch of different places, they can publish that up to the npm Registry. Other developers in other projects can use npm to install that dependency and also keep up-to-date when there are updates to it.

If you’re depending on a platform, or a module, or a library, or something, you can automatically pull in all of those updates and keep your app up-to-date.

Why Inc. Not Foundation?

Michael Schwartz: Most other package ecosystems are supported by a foundation, for example Ruby, or maybe Python – why didn’t that work for JavaScript and npm?

Isaac Schlueter: There is a couple of reasons for this. The first one is, if we go back to the kind of the history of npm, when I decided to start a company around it, it was my side project for about four years.

And it grew in popularity. It was running on donated infrastructure from this company, Iris Couch. We just grew to a point where the scale was too massive for them to be able to afford to keep doing that.

I looked at my options, and starting the foundation was definitely on the list of things that I could do. Another option was, find a home for it in some big company, try to get hired by Google or Microsoft, or somebody.

The reason why I decided to start an independent company was simply owing to the scale and the rate of growth that we were seeing. So, the typical way that a foundation operates, you raise a bunch of money from a bunch of companies who have some vested interest in whatever the thing is, whether that’s an open-source project or some other thing. And then, you spend that money on keeping the thing going, so that might be, having developers work on the project, your managing governance, or marketing, whatever.

Within npm, we had this exponential growth curve that we are still at the very beginning of, in terms of the number of users on the npm platform. We’d grown to about a million users. Our rate of downloads and package growth was just astronomical.

The JavaScript language is used in pretty much every application out there. There are Ruby developers, there are .Net developers, there are Python developers, but the front-ends are all running in JavaScript, and everybody was increasingly putting more and more stuff into npm and using it very widely.

So, we kind of did some back-of-the-envelope math and realized like, “Okay, well, we could go, raise a couple million bucks to start a foundation and be able to put some resources behind this thing. But what are we going to do next year? We’re going to need 10X as much. And then, the year after that, and the year after that.

The task of just kind of continually being in fundraising mode was pretty daunting. Especially because it’d be hard to justify that the benefits to each of those member companies would also keep increasing enough to justify them, increasing their investment.

On the other hand, if you have an exponential growth curve of almost anything, even rising costs, you can take that to an investor and say, “Here’s the thing: it’s a thing that’s growing, it is a thing that’s exciting.” You can tell a story about how you’re going to go about monetizing that in the future, and that’s something that is sort of a good fit for a venture-back startup.

Npm Products

Michael Schwartz: Most people use npm for free – what do you actually sell?

Isaac Schlueter: We sell two main things right now. The first is npm Orgs product, which is a multi-tenant SaaS thing that you can use to store your private code within your organization. That’s used primarily by smaller companies or front-end development teams within larger companies.

The price point there is $7 per user per month. It grows depending on the size of the Org, you can have multiple packages all underneath that same Org.

The other thing that we sell is our product called npm Enterprise, which is a single-tenant instance of the npm Registry and website. It has some additional features, like single sign-on, or security policy enforcement, that kind of thing, which is more of a need at bigger companies.

Market Segments

Michael Schwartz: What kinds of companies use the Enterprise products – do you segment the market at all?

Isaac Schlueter: The sweet spot for us is about development team of 50 or more. We do some market segmentation to go after different sectors. There are some sectors that we focus on, but obviously, we will sell it to anybody who wants it. There’s a fair amount of inbound that comes in as well.

We’re seeing the most traction in sectors that have really high compliance, policy and security compliance needs, so financial industry is a really big one. And there’s also a ton of customers with money to spend on their development practices, and they get a lot of benefits by having their developers able to build things in a more frictionless way.

The other sort of category of markets that we go after, where we’ve seen some good results, are companies where there is sort of an internal agency model, where you have a web development team that has multiple different website properties.

There might be hopping between different websites that are all kind of under one big corporate brand. And in that case, there’s a lot of benefits to being able to reuse those modules.

Also, frequently, in both types of companies, once a company gets to a certain size, there’s often like a tools team or kind of a platform team that’s in charge of all of the reusable JavaScript code that’s used across all of the different properties. And in those cases, they also benefit a lot by having something like npm in-house.

Marketing / Sales

Michael Schwartz: In terms of marketing, you were sort of starting from a nice position because everyone knows npm – how do you organize sort of the marketing effort so that people know what the commercial offering is? And how do you organize the sales – do you just wait for inbound or you do any outbound marketing?

Isaac Schlueter: We do a fair bit of outbound marketing, and it’s a little bit of a double-edged sword. Everybody knows npm, but not everybody knows npm Inc. or npm Enterprise.

One of the challenges that we ran into, which I think is common among a lot of companies that are operating in open-source communities, is that people have heard of the thing but they haven’t really heard of the product.

One of the things we heard is, “Oh, npm? That’s a company??” I just thought packages came out of the ether. I didn’t realize it was downloading from somewhere.”

So, when it comes to our marketing efforts, a fair amount of the work there is in continually beating the drum of like, “Yeah, we have things for you.” “If you need policy compliance, if you need security, if you need proprietary code, and you want to manage it, using the things that your developers already know and love, then we have a solution for you.”

When we go through the sales process, typically we have an internal champion, which is usually engineering architect, or engineering manager, or something like that, who sort of intuitively understands the benefits of npm.

Then, the sale process tends to be one of making the case to folks who are not already deep in this ecosystem. That tends to be people in kind of like internal development tools, purchasing team, the CIO’s office – it can take a couple of different shapes, but, you know, the folks within a large Enterprise who managed to spend on development tooling.

Free V. Commercial

Michael Schwartz: Diverting a little bit from marketing, one of my guests said to me that it’s almost better to start a company around a product that you don’t write, an open-source product that you don’t write, because all those engineers who are working on the open-source thing, they’re not billable, or they’re not contributing to their commercial product – do you feel that friction at all, where maybe part of the team is really committed to the community mission but maybe other parts of the organization are more interested in the product than actually generate revenue? How do you reconcile that?

Isaac Schlueter: It can be a tough needle to thread. I mean, not to dispute the past guest who said that, there’s some sense in what they’re saying, but obviously, I do disagree because of what I’ve done.

I think that the challenge, or at least the puzzle, is to figure out how do we continue to make good on our community mission in such a way that it serves our product interest, and how do we design our product interest in such a way that they’re served by the success of the open-source community.


We have certainly made some missteps in the past. One of the biggest things that makes good intuitive sense. You have an engineering team, you have a web team, you have a backing team. Of course, you’re going to have an open- source team, but the minute that you start doing that, you create this unhealthy dichotomy.

Even if it’s just in your own thinking as a founder, and as a manager, as an entrepreneur, where it can be very easy to get into these dysfunctional patterns of being resentful about, “Well, these five engineers are spending all their time on the open-source stuff, and we’re just giving that away, and how is that helping the company?” “And here I am, busting my hump every day, trying to make our website better, and trying to sell products and trying to get new log-ins and new sign-ups.”

And every time you want to build some new thing, it’s like, when we run into this case of like, “Should we give this thing away or should we charge for it?” And the thing that I’ve come to after five and a half years of doing this is – if I was smarter, maybe I would have come to it sooner –
is just that that’s the wrong question.

The minute you find yourself asking, “Should this be free or should it be paid?”, you’ve already kind of committed the fundamental thinking error of putting those two things at odds.

The better way to think about it is, “What is the free thing that will get someone to pay for this?”

So, what can we give away in such a way that it will open the door for an upgrade path, and that will open the door for a paid product that is a very clear enhancement to the thing that they’re getting for free.

Some of the best companies in the space that I’ve seen tend to have an approach of, like, their explicit goal is that individual developer should never have to pay for our product. But, a company should almost always have to pay for it.

And that really clarifies the thinking, and it clarifies a puzzle in a really interesting way. Because anything that involves a team of ten people, writing a proprietary application, like, they got to pay for that. That’s a company, that’s a for-profit company.

Now, okay, it could also be like a school or it could be a nonprofit org – you can always give those folks a coupon, that’s not actually a problem. But with our Enterprise product and with our Orgs product, I think we’ve done okay. Orgs are free if they’re open source.

If you have five people collaborating on an open-source project, and they want to keep a bunch of modules under a namespace, they don’t have to pay for that if it’s all open source. And we really see that as part of the nice, easy transition from like an individual working on open-source, a group working on it, and then up to a group working on some kind of paid product.

One of the things that we did not anticipate when we made Orgs free was actually it increased our paid Orgs signups.

We’d always intended to do some kind of, like, first month free, type of trial type of thing, and just kind of didn’t get to it because it takes time and attention, and there’s only so many people and only so much code you can write in a day.

And we decided that we want to make Orgs free for open-source projects. Because there was a handful of different open-source projects, and we gave them an Orgs, one of our database markets just went free. And we were kind of like, “We should just make this a thing.”

When we did that, what was surprising was, people at companies would sign up for a free Org, add their whole team, try it out for like an hour, go, “Okay, this is going to work, and then, they’d flip the switch to be a paid org.

That’s for me when kind of the light bulb went off. Like, “We should not be thinking about what is paid and what is free, we should be thinking about what is free, so that it makes it easier to buy the paid thing, if you need it.

Pricing

Michael Schwartz: So, it was all on the honor system? You could sign up as an Org?

Isaac Schlueter: You couldn’t publish anything private. You couldn’t have a package in your organization that had access control attached to it. Anything you published in a free Org would be open to the entire world.

Michael Schwartz: You really almost had to invent a business around this because I can’t say there was like any direct model you could choose. And one of the hardest parts of that is figuring out what to charge for that, especially because you didn’t have a lot of data. I’m wondering since you started the last five years, have you had to pivot on the pricing model a couple of times? Or has it been relatively stable, and did you get it right?

Isaac Schlueter: Yeah, we just stuck the landing – it’s been perfect. No problems at all. I wouldn’t say that we’ve pivoted on the pricing model. We have made some changes that I think are somewhat subtle. And most of those I’ve been owing to user experience.

Around in 2016, or beginning 2017 I think – I forget the exact dates now, it’s all lost in the mists of time – when we originally released our Orgs product, our paid Orgs product, basically an organization, again, you build things in the simplest way possible with the stuff you have because you’ve got to ship something, and if at one point it was perfect, you waited too long. And just the easiest way to do it was to say, “An organization is a subscription that belongs to a particular npm user.”

That gets us into some real interesting subtlety I think that not a lot of Org users, then or now, really fully appreciate it. But the idea was, your Org would have an owner – that was an npm account.

The real big problem that came up, and it came up fast, was, well, what happens when that user goes away, what happens if they leave the company and now what. It’s still billing to their account and their account has this credit card attached, it is a corporate credit card, and like, the only way to resolve it was actually to go through our support team, which, I love our support team, I think that they’re great, they do great work, and I’m really happy that they’re there, and supporting our community, and our customers, but every time somebody has to contact support – that’s a mistake we made, that’s something that we needed to fix.

So, we kind of went back to the drawing board and said, “How do people think this works? How do users think this Orgs thing works?” They think that they create an Org, and they think that they just pay for the Org, and the Org has some user who is administering it, but they can change that user.

So, what that said to me and what we kind of landed on was, the organization itself should be the primary first-class kind of billing entity. And then, the user account of the subscription, and everything else, is attached to that organization, not to some individual user.

Then, that shift, due to some other sort of subtleties, and how it was implemented, we realized that if we made this transition, a bunch of Orgs, who are currently not paying for users who have access to their packages, would suddenly have to start paying for those user accounts.

And the way that we addressed it was, we just collected all of those cases where that would happen, and we applied a coupon to all of those accounts to give them a discount and said, “All right. Like, your bill isn’t going to go up.”

Yeah, we probably could have just said, “Well, bad news. I know you’re paying $7 a month now, but it’s now going to be 21 because you got these other two users that technically are part of this other Org, even though they’re in your Org also.” And it got really hairy, but we figured that the user experience hit just wasn’t worth it like, “Thank you for being an early subscriber, an early adopter.”, but moving forward, it really vastly simplified it.”

The organization is a top-level thing, it’s like a first-class entity in our system. Every user account costs 7 bucks a month – that’s it. There’s no like discounts if you’re in multiple Orgs or anything like that.

Nobody complained, some folks got an email that said, “Hey, you know, we’re changing our pricing model. This would make your bill go up, but here’s a discount, so it won’t.” There was basically no reaction, which is what we’re hoping for.

Now, our Enterprise product, regarding pricing, yeah, we’ve been all over the map there. You talked about there not being data, well, with a self-serve product, you have quite a bit of data. It’s really easy to just throw a survey out there, and like, yeah, it’s going to be noisy, and you’re going to get a dozen people were like, “Oh, I wouldn’t pay more than a penny.” But you can wipe out the outliers, and get some kind of at least directional data.

One of the things we found was, there’s already some services out there, like GitHub costed 7 bucks a month for Orgs at that time. I think they’ve since changed their pricing model for their Orgs products, so it’s like $25 for the first 5 users and then $9 after. We thought about doing something like that in our sales, mainly in the future. Just to kind of help people get over that initial hump.

But once you had your first 5 users, it’s very, very sticky. The easier we can make that seem, it’s like 25 bucks and you get 5 users – that seems cheap. But if it’s $7 a user, and you only had two users, there’s a pretty good chance you might not like stick with the product. If you get those 5 users in, now you’ve got five people all collaborating on code, and they’re not going to abandon that for anything because now it’s kind of in their process.

So, with the Enterprise product on the other hand, there really is almost no data, and it’s very difficult to get that data. A lot of Enterprise products, even if you go to like companies, providers, websites, and you look at their Enterprise products, it says, “Call us.” You are kind of in this like arm wrestling match with the procurement department, where your price is, like, you give us ‘whatever we can get out of you’ basically is the price.

I think with our Enterprise product now we start at $50 a seat, and the product has quite a bit more features in it than our previous generation of our Enterprise product which was quite a bit cheaper. And we also have a minimum number of seats in order to qualify for an Enterprise product. We don’t offer it for less than 20 seats.

The nice thing about that is that it immediately selects out everybody who’s not actually going to need the benefits of this product, who is not going to need the policy enforcement and security features of it.

They are not going to be as well served by that product like they should really be buying Orgs. So, it’s tempting to look at pricing as like the way that you make money, but really, another way to think of it is like, how does a pricing act as a filter for who should be using this thing, and how does it work as a signal.

If you have a product, and you have your product break down your pricing page, or whatever, there are companies that are going to just look, and they’re going to say, “I don’t want the cheapest one, I don’t want the most expensive one – give me the one in the middle. I don’t want to look at all these words.” And they’re just going to buy it.

You need to think of, like, who is that user, who’s that persona and kind of focus your research there, and then, work backwards, like, “What is their budget? What can they pay?” And then from there, you’ve got pretty good answer about your price.

Every Enterprise is going to try and make some argument for why they should be paying less. So, start high and let them push you down. And also, like, if you don’t start high enough, then they’re not going to think that it’s legit.

More On Pricing

Michael Schwartz: Was that one of the hardest parts of migrating from I guess open-source repository or open repository to business? Just getting that right?

Isaac Schlueter: On the list of hard things, that doesn’t even make it top 10, there is quite a bit that’s much more challenging. I mean, the other thing about product is, I think it’s really much more art than science, and certainly, there’s product managers out there who are like pounding the table as they listen to this, and sure that I’m super, super wrong about it.

But, so much of it is, you need to figure out a price that you won’t go bankrupt. And then, you need to figure out how to sell that at that price. And the specific number, is it 8, or is it 9, or is it 20, or is it 25.

I think at the end of the day, that probably matters a lot less than have you built a product that people want to use, and have you priced it in such a way that it sends a signal that those people actually are the ones who should be using it.

If you look at the pricing of wine, great example of this — I don’t know, I’m going to offend some wine snobs in your audience, I apologize – a lot of the pricing of wine is like completely arbitrary.

It’s like, are you somebody who likes the expensive wine or who doesn’t care, or you’re like somebody who kind of wants, “I want it to be good, but like I don’t want to spend a lot.” I mean, all wine, it’s all fermented grape juice. It’s not that different, it’s essentially just overstock of wine, that’s why they’re able to sell it so cheap.

But that price signals a particular kind of buyer who is likely to benefit from that product. And on the other end of the spectrum, it’s the same kind of thing. You’re buying this $500 bottle of wine because you want to show off how rich you are, and in order to show off how rich you are, it has to cost $500. And so, that’s why people buy that.

In the world of software product management, we like to pretend that we’re a little bit more rational because we’re all like tech people and we are very cerebral and logical. We do math, and it still largely just kind of comes down to like, what are the products that your product is like, how much do they cost. If you just copy them, it’s probably you could do a lot worse.

Lessons Learned

Michael Schwartz:  So, now I have to ask a question – what were some of the hardest challenges? Please, take top, one or two.

Isaac Schlueter: I set myself up to that one, didn’t I? I mentioned a kind of the split brain that can happen within an organization when you separate out your free, or open-source, or community offerings from your paid offerings, and think of them as different things. That’s a very, very easy error to make, but it’s a very pernicious one that really gets in everywhere.

And I think it, in order to avoid that error, you have to think about that design, not just in your product design but actually in your organization design, in your strategy, in your go-to-market, in where you get your investment from, and who you have on your board. Like it has to really, really inform everything about your company in order to steer yourself away from that kind of problem.

Another big and easy mistake to make is having an on-prem and a SaaS product at the same time early in companies like them. Eventually, you’re going to need to have an on-prem product. And if you’re positioned well to do a bottoms-up sale, that has to be a SaaS.

Because no development team — if it’s five people on a Dev team and you’re trying to convince them to use this tool, they’re not going to spin up a server and install it and operate it themselves – they’re just not set up for that. If there’s a SaaS offering, they’re going to take that one.

And as an early stage company, when you’re talking about like 10, 20 people, if you are building products, like you’re going to take every single shortcut you possibly can. And the biggest shortcut you can take, if you have an on-prem product and a SaaS product, is to start putting big ‘if blocks’ in your code base. And you can tell yourself like, “Oh, they’re the same code base, were totally keeping them in sync.” It’s all one big Dev team.

What’s going to happen is, even the same developer working on both things is just going to put a big ‘If Block’ and say, if process dot, end of dot enterprise equals true, and then basically fork in place, which is even worse than actually forking two code bases. Because now you have this kind of like convoluted ball of mud.

We originally did have an on-prem Enterprise product, we still have some customers who are using it, even though we’re still trying to kind of like nudge them to our Enterprise SaaS product. We reached a point as a company, where we sort of realized we can’t keep running this Enterprise product, we’re actually losing money on every sale, because the cost to support and operate and get a customer up and running is just too high.

So, we pivoted somewhat, we kind of instead said, “How do we take what we do with the registry and with the website, with the Orgs and everything else?” “How do we make a SaaS offering there?” And what do the Enterprise customers actually need for that?”

We’re still figuring out kind of how to play in that space, and how to best have that integrated and connected with our self-serve products, but it’s still a huge step in the right direction. I think hindsight being 20-20, going out the door really in our first year with an on-prem Enterprise product and a SaaS team’s product at the same time, seemed fine. It seemed like a good idea at the time.

A bunch of people told me, “Well, you need to really make sure that the code bases don’t diverge if you do that.” I heard that from a bunch of folks at GitHub, who made the same kind of error, and I was like, “Okay, noted. Don’t let the code bases diverge.” Got it. What they didn’t tell me was, “You’re going to let the code bases diverge. That is absolutely going to happen – it’s inescapable.” You can either be a SaaS company or an on-prem product company, and those two companies are very different shapes.

If you’re going to be an on-prem product company, that means there’s a lot more of a top-down sale most likely. Or it just has to be so easy to install and start running like on a laptop. It’s almost certain that you’re going to need some really good professional services skills within your company, because making a customer successful with that product is going to require that you have somebody who knows how to stand it up, and how to operate, and kind of which buttons to push, and which knobs not to push, how to tell if there’s a problem – all of that stuff.

That means training, that means customer success, that means like really building in good metrics into the product itself, but in such a way that they’re not going to offend people who don’t necessarily want data collected about them, or if it’s behind the firewall, like, how that all works.

On the other hand, the way that you go to market with a SaaS product is completely different. It’s more about adding hooks and adding limits and adding these pay walls within your free product. So, when you go to your settings page, or you go to like view some metadata, or you go to view a report, or you go to add a new package, they can say, “Hey, you need to pay to use this feature. And those are two completely different mindsets.

At a certain point of maturity, you could reach a point where you have enough, maybe you fall of the bottoms up path, the bottom up path eventually gets to the top, and the top down path eventually gets to the bottom. But if you try to approach it from both sides at the same time, I just feel like that almost never can work out well. Now, there are companies that end up doing both, but if you really look carefully at the companies that are successful doing both, most of them started on one end, and then made it to the other.

Either they started as a top-down company, and they did well enough with like evangelizing, and marketing, and getting adoption, and gaining traction within these large companies that it became sort of a de facto standard. And then open-source parts started to kind of become the way that developers expected to do things.

Or they started as a bottoms up strategy, where every developer just eventually started to expect that this is how things work. And when they came to a big company they said like, “We need to sign up for these.” And then, eventually, they built out features that built up to that enterprise-level. And obviously npm loses position to do the bottoms up thing, and so, approaching both the same time was — I would not do that again.

Team

Michael Schwartz: What’s your approach to building the team?

Isaac Schlueter: Before there was a company, there was me and there was one guy who was in Thailand. Another couple of folks, one was in Eastern Europe – again, this was a whole donated infrastructure stuff, so whatever that other company was doing. I didn’t really recruit them, it was kind of just like who I ended up with. And luckily, some of them were really good. A lot of npm’s success really owes to that.

When we founded the company, you know, it’s easy to forget now, because it doesn’t feel like it was that long ago, but video conferencing was not as good as it is now. Chat apps were not as good as they are now. Slack didn’t exist, Zoom didn’t exist. I think Zoom might have existed, but it wasn’t what it is now. It wasn’t back then easy-to-use.

So, initially, we would focus our hiring on the Bay area, which seemed reasonable. It’s what you do, it was a Bay area startup. We opened an office in Oakland, mostly because that’s where I live. We went from there, so that the initial team was almost all coming from Oakland. There’s one person we got doing op stuff, who is in South Africa. And part of the challenge was like adding remote people was really hard, because the whole team is there in Oakland.

Like, we’re talking about strategy, and tactic, and products, and technical direction, and stuff over lunch, out everyday, like, it’s really, really hard to keep people in the loop if they were not colocated with us.

We eventually moved from IRC to Slack, and we started doing more and more stuff on Slack. We found that we actually needed to have a little bit more time zone coverage. So, we added some other developers, we hired somebody who was in Europe, and that really pushed us to operate in a more distributor friendly way. So, doing more of our discussions on Slack, having our meetings with Zoom.


We kind of just kept adding remote people. It was like, “Well, there’s those two developers we want to add, we want to hire.” And like, can they do remote, and one of them is remote, and you do that again, again, again, and after a while, it got to a point where like, our CEO is in Halifax, our CTO is in Toronto, I’m here in Oakland. We have this big beautiful office, and I’m one of like four people in it.

When we rented that office, we had this plan to like eventually grow to 50 people. And we were looking at the office we were in. We were 13 people, and we did not fit. We had a single conference room, a single room with a door that closed, and we grew to about 13 people, and we were just like, “This is ridiculous, we got to get out of here.”

We found a bigger space, we knew that we would end up growing to between 30 and 50 people over the next couple years, so we’ve rented the space that could house that many. I think it was just a few weeks or a month ago actually, or maybe a couple months ago, where we had this interesting situation where our landlord wanted to move us to a different spot within the building.

You know, we’ve been thinking for like a year how stupid it was that we had this big Oakland office, and like, we’d really like to get rid of it, but we’ve got another year on the lease. And they’re like, “Hey, we want to move you from the 11th to the 5th floor.” And we’re like, “How about we just leave?” They are like, “Yeah, cool. We get to rent the space out at 2019 prices instead of keeping your lease? Yeah, go.”

So, it actually worked out great. It was a little bit sudden, the way that sort of fell on our lap. But yeah, now we’re just 100% remote, everybody works from home, and that freed up a lot of capital for us to actually offer like a monthly work from home allowance, to cover things like internet, and the desk light, or whatever work expenses you might have, whereas previously, it was like we really can’t afford to do that because we’re spending our whole office budget on an office.

If you want to work in the office, like, we got this great office, but most of our staff was not in the Bay Area. So, in terms of like, where do we recruit people or how do we find talent, we do get a lot of resumes, we do get a lot of interest especially in technical roles.

When it comes to other roles, when it comes to non-technical roles, things like sales or marketing – I hate that term ‘non-technical’, like, the profoundly technical jobs, but if I want to hire a product manager who doesn’t write JavaScript, if I want to hire a VP of finance, it’s kind of the same thing every other company does.

We use a combination of just our networks, which has some pros and cons. The obvious pro, hiring somebody you know is you know them, so there’s a good chance that there’s a little bit more of like a connection, they may be a little bit more motivated to make it work, etc.

The downside is, you probably know people who are like you, and so you can very quickly and easily get into a bad cycle, where your kind of diversity just goes off a cliff. Or even worse, we’re like people who are kind of in the crowd, or like included in decisions, or have a little bit more power or authority within the company, then they probably sort of can get very like toxic and weird that way. I think that we’ve avoided that for the most part.

The other thing we’ve done in, especially tough to find rolls, we’ve had some success with executive search firms, we’ve done that a couple of times. And then, also posting stuff on LinkedIn, on Lever, on our other social media channels. We have our own npmjs.com/jobs that shows what roles we have open, and people apply for them.

Advice For Entrepreneurs

Michael Schwartz: The last question. Any advice for new entrepreneurs who are starting a business where open-source is a part of their business model?

Isaac Schlueter: I talked about this a little bit, but I’m going to go ahead and just repeat myself, because I feel like this is really important and really easy to miss and really easy to not understand the importance of it.

You have to craft your plan such that doing the free thing actually serves your strategy. And there’s a lot of subtlety to that. I don’t have like one weird trick that will fix everything. But you definitely need to think of, like, “If we give this thing away for free, what happens?”

Part of the thinking there is, imagine that you have like ants roaming around on a dirt floor or on the ground, if you pour some honey in one spot, that’s going to change the whole ecosystem. And that’s kind of what happens when you start giving away something for free, whether it’s an open-source product, whether it’s a service that you say, like, “This is free for open-source packages or for open-source projects, or for open-source users whatever.”

You’re creating a pile of honey in the middle of all these ants that are currently just kind of roaming around in their own different ways, like, they’re all going to find it, and they’re all going to come to it. It’s like, “Okay, now what?” What I mean by that is, when you get something away for free, you are fundamentally kind of like disrupting an ecosystem.

It’s important none of the ants are complaining about the honey, but you’ve now changed the shape of the scenario. And that can be really, really good, or that can be really, really hazardous.

It’s tempting to be like, “Oh, I’m charging for this thing and I’m giving this thing away.” And how do I convince the free people to buy the paid thing? Like, you’d really need to back several steps up and think, “What do these people need? What’s the thing that I can sell them that will address that need? And what’s the free thing that’s going to drag them over?” Instead of saying, “What do I give away for free?”, and then separately from that, “What do I pay for it? How do I balance these two?” They have to be one thing in your mind.

Closing

Michael Schwartz: Isaac, that was super interesting. Thank you so much for joining us today.

Isaac Schlueter: Thanks for having me.


Michael Schwartz: Huge thanks to the Open Core Summit for connecting us to Isaac and for volunteering their only sales office to provide a quiet place to record. Don’t miss the next Open Core Summit. It was one of the best conferences I attended in 2019. Where else can you get a critical mass of open-source founders in one place?

It’s essential that we foster an event like this so we can share experiences about what’s working in open-source business.

Transcription and episode audio can be found on opensourceunderdogs.com.

Music from Broke For Free and Chris Zabriskie.

Audio editing by Ines Cetenji.

Production assistance by Natalie Lowe. Operational support from William Lowe.

Have comments? Tweet at us. The Twitter handle is @fosspodcast.

Please, subscribe to the podcast on your favorite podcast platform. Every subscription helps. Next week we have Shannon Williams, one of the founders of Rancher. He was fantastic, so don’t miss this one.

Until then, thanks for listening.