From Education to Enterprise — Part 1
Why Students Struggle to Build Enduring Enterprise Companies
This fall, I joined the investment team at Rough Draft Ventures. Powered by General Catalyst, Rough Draft backs student founders from high schools and universities across the country. Over the past several months, I’ve spoken with over 50 student founders, listened to 20 pitches, and led 3 investments. Along the way, I found myself wondering: where are all of the enterprise companies?
As a Computer Science geek and Silicon Valley resident, I’m a sucker for enterprise technology. I’ve spent my past few summers at two of the fastest growing enterprise startups in San Francisco (AppDynamics and Blend) and am lucky to have some amazing mentors investing at Lightspeed, Greylock, and Sequoia. I find myself fascinated with the digital transformation of the enterprise, whether that’s infrastructure IT, dev tools, security, storage, or data.
So what’s the deal? Why do fewer than 10% of enterprise startups valued over $1B in 2017 have at least one student on the founding team?¹ My thesis is that students lack the context, contacts, and credibility that is typically obtained through years of operational experience. I’ll acknowledge each of these themes in a three-part series, provide a structured explanation using examples from some successful enterprise founders, and propose a few suggestions for aspiring student founders using counterexamples from some of the outliers.
Context — the backdrop for ideas, innovation, and industry know-how
The first and most prevalent theme I want to explore is context. Most successful enterprise companies are built upon years and years of context in a specific area. Unfortunately for students, this context is often gained outside of the classroom.
Take Jyoti Bansal, founder of AppDynamics, for example. After studying Computer Science at the Indian Institute of Technology, Jyoti spent 8 years in various engineering/architect roles at enterprise software companies. During his time at Wily Technology, Jyoti gained a deep understanding of web application monitoring and diagnostics. This context led him to two key insights about the application performance monitoring (APM) space that would eventually give rise to his company, AppDynamics. The first was a realization about the technology: APM existed, but applications were becoming more distributed. One single click (like the “checkout” of a shopping cart) might now hit 20 to 30 different servers, not just 1 or 2. This would require a change in the way those applications were troubleshooted. The second was on the business side: in his 8 years in the industry, Jyoti saw the consumerization of enterprise software. Seeing CRM going from Siebel to Salesforce and HRM going from PeopleSoft to Workday, Jyoti knew it was only a matter of time before a consumer-driven approach to APM emerged. He decided to be the one to build it.
Nir Zuk, founder and CTO of Palo Alto Networks, provides another great example. Prior to starting Palo Alto Networks, Nir spent his entire career in the security space. Early on, Nir was a principal engineer at Check Point Software Technologies, where he helped invent stateful inspection technology. In 1999, Nir co-founded OneSecure, the first intrusion prevention system. He continued as the company’s CTO until 2002, when the company was bought by NetScreen Technologies. Three years later, when NetScreen sold to Juniper for $4B, Nir stayed as CTO. At this point, Nir noticed that the entire world was using the technology that he had invented at Check Point ten years earlier. Recognizing this as an opportunity, Nir left Juniper, to raise $9.4M from Greylock and Sequoia.
Does this mean you have to spend a decade in the trenches in order to build a billion dollar enterprise company? Not exactly. Let’s look to a few counterexamples to understand how students can pull context from unlikely sources.
Aaron Levie’s experience as a student provided him with the context to start Box. His idea was born out of the basic frustration that he had faced over and over during his time as a student at Mercer Island High School and USC. He remarks: “It felt unbelievably kind of painful and taxing to share data across those different systems and with other people. It seemed like there should be a simpler solution.”²
This sentiment was reinforced during an internship, where he was forced to use “clunky legacy software” to collaborate. “Between both of those experiences,” he notes, “it became obvious that there had to be a better way to be able to access and share your files from anywhere.”³ Levie was able to translate the context from his years as a student to a universal problem that affects any business user.
Patrick and John Collison, who dropped out of college in 2009 to start Stripe, gained their context elsewhere. While the brothers hadn’t had much operating experience themselves, they grew up witnessing it: their parents were both entrepreneurs. Thus, the brothers were no stranger to entrepreneurship. “It seemed normal,” says Patrick Collison, “because whatever your parents do seems normal.”⁴ Whether we realize it or not, we have the ability to capitalize on the experiences of our friends and families. Your neighbor is a surgeon? You’ve probably heard a thing or two about surgery. Your father sells software? I’ll bet you can do a sales pitch in your sleep.
With that said, the Collison brothers could not have succeeded in building Stripe with this context alone. They had context in another key area. While Jyoti was building enterprise application monitoring software and Nir was building firewalls, the Collison brothers were developing apps. The two started programming at an early age and sold their first company, Auctomatic, in their teens. At 16, Patrick wrote his own programming language and artificial intelligence system. In fact, their idea to disrupt the mobile payments business was born of a problem that they had encountered themselves as app developers. This context gave them the empathy to not only build for, but also sell to any developer.
At the end of the day, students are at a natural disadvantage when it comes to understanding the complexities of the digital enterprise, but that certainly doesn’t mean they can’t succeed.
My advice for aspiring student founders is to think strategically about how to use your time. Be cognizant of the ecosystems at your disposal and take advantage of opportunities that immerse you in the industry that interests you the most. Students are often led to believe that the “golden path” is to do a software engineering internship every summer. This is great if you want to continue as a software engineer after graduation. However, if your goal is to start an enterprise company, I believe the formula is a bit different. It turns out that one good software engineering internship gives you the technical foundation you need to build software professionally. With your remaining summers, spend time gaining context in the industries you want to disrupt. If you’re interested in infrastructure, get involved with your university’s IT department; fintech, spend a term or summer working at a bank; or marketing, try an internship at a marketing agency. During these experiences, try to holistically understand how and why your team buys software, which manual processes or workflows could be improved, and what industry trends are driving change in the organization.
This exploration will help give you the context you need to start an enterprise company. However, context is not enough on its own — in my next two posts I’ll cover the other essential components of starting an enterprise company, contacts and credibility.
Thanks to Ankur Goyal, Peter Boyce II, Liu Jiang, and Adam Goldberg for helping me form these ideas.
As always, I’d love to hear your thoughts. If you liked this post, please “clap” to help to promote this piece to others or let me know your thoughts in the comments.
Sources
[1] https://www.cbinsights.com/research-unicorn-companies
[3] http://www.businessinsider.com/aaron-levie-quit-college-to-found-box-now-25-billion-company-2017-7
