AppDynamics’ David Wadhwani and Jyoti Bansal. Source: San Francisco Business Times.

Building a multi-billion dollar company the AppDynamics’ way.

Over the past eight-plus years, it’s been a privilege to work with Jyoti Bansal, Bhaskar Sunkara and the rest of the AppDynamics team. Lightspeed is thankful to have been partners on the journey to build a major market disruptor in the enterprise software space, in classic Silicon Valley fashion.

It was evident back in 2007 — when we first met with Jyoti and started working with the early team — that this was a group that was on a mission, and a group that had “extreme purpose”. AppDynamics, like the companies and entrepreneurs Lightspeed is constantly searching for, has changed the way things get done in the enterprise. It is one of those “difference-making” types of companies.

From the outset, AppDynamics had a bold vision that involved two things:

  1. First was a revolutionary new approach to monitoring end-to-end application performance which would redefine the $5Bil+ APM software industry.
  2. Second was an unprecedented new model for how enterprise software could be packaged and consumed, which AppDynamics described as “building the world’s first ‘consumerized’ enterprise IT product”.
Jyoti Bansal, AppDynamics.

Jyoti, Bhaskar and the early AppDynamics team saw the trend toward the cloud, container-based apps and software micro-services, and the massive fragmentation and componentization of modern application systems that was on the horizon at least three or four years before the rest of the tech industry. This informed their revolutionary product design which, for the first time, offered truly end-to-end visibility of application transactions across all tiers of datacenter, web and mobile infrastructure even as application fragmentation and additional tiering continued to grow by leaps and bounds.

They also pioneered the concept of “consumerized IT” by delivering one of the first truly consumer-grade product experiences for an industrial strength software platform that was capable of enterprise scale, but deployable in under an hour with a simple but powerful interface that felt more like Uber or Airbnb than Oracle or SAP.

This potent combination resulted in a compelling product with lightning fast purchase cycles and exponential sales growth for a company which had started out in a relatively unglamorous and overlooked software category.

Bhaskar Sunkara, AppDynamics.

From the very beginning, Jyoti, Bhaskar and the team team did an amazing job of designing a product with exceptional market fit and a form factor which could insert “small” into any size company, but also scale to meet the needs of the largest Global 2000 enterprises.

After disrupting the APM category, AppDynamics expanded its’ vision to managing, monitoring and providing analytics for all digital business transactions across an enterprise. This created new customer and revenue opportunities and the company embarked on the next stage of growth. With greater scale there were larger and larger customers to support and more and more of them and AppDynamics needed to develop new skills to keep up with the growth.

Traditional industry players also began to respond with competing products, but AppDynamics benefited significantly from the deep product orientation of Jyoti and Bhaskar which allowed for significant enhancements, iterations and broadening of the initial core product. They moved quickly and delivered new capabilities that were well beyond what the competition could offer.

Growing into a $10 billion opportunity.

As AppDynamics surpassed $100M in sales, we knew that the opportunity ahead of us was an opportunity to grow to $1B or more in revenue and upwards of $10B in market value if all went well over time. However, we also realized that bringing in expertise to scale operationally while maintaining the company’s start-up DNA and visionary product sense would be a critical challenge.

David Wadhwani, AppDynamics.

We were extremely fortunate to partner with David Wadhwani who joined AppDynamics from Adobe in 2015 as the new CEO. David complemented the entrepreneurial DNA of the original AppDynamics team with powerful operational precision, and with a sense of renewed purpose to lead the company on the next leg of the journey “from $1B to $10B” of market value. David added other executives to the team, which deepened AppDynamics’ ability to sell to and support even the largest customers in the world and to compete with the most sophisticated, global-scale competitors.

The Moral of the Story — Part I. (There are really two parts to this story).

  1. First, it’s a journey with exceptional founders and an early team to build a disruptive product, and blast a hole in the current market landscape that allows for rapid growth and customer adoption.
  2. Second, it’s about the graceful transition to execution and growth at scale while retaining that entrepreneurial agility and ability to stay ahead of the traditional players in the market.

Together, these two parts of the AppDynamics story have resulted in a company which has fundamentally changed and will continue to change the industry for how applications are managed and operated.

So…How Did One of the Biggest Enterprise Deals in the Last 20 Years Happen?

How did AppDynamics end up being acquired by Cisco?? This is the way these things happen sometimes. Just as AppDynamics was on the verge of an IPO, Cisco stepped in and bought the enterprise software company.

The immediate question is why did the deal — the largest enterprise deal in the last two decades — happen?

From the buyer’s side it was for many of the same reasons that AppDynamics was poised to go public. It was because AppDynamics has anticipated and built software and a business for the future of business.

From the AppDynamic perspective, Cisco was highly motivated and made a compelling proposal which included the opportunity to continue growing the AppDynamics business within the larger Cisco family.

This acquisition presents Cisco with a strategic entry point into next-generation cloud and application analytics technology and they concluded that this was not something they wanted to pass up. That was the reason the deal happened.

We had every intention of going public and building an independent company. And it was precisely that long-term vision and commitment of the management team which Cisco appreciated so much. They realized that this could be harnessed to help take Cisco into important, new, future-facing markets where they have a core strategic interest.

They were buying a piece of the future.

Moral of the Story — Part II.

So how did AppDynamics get to this moment? In other words, how do you build a multi-billion company? You take the long road.

That is how one of the most highly valued software company acquisitions of the past twenty years happened…

…by being a company that didn’t need to be acquired at all.

I’m a Partner at Lightspeed Venture Partners focusing on investments in enterprise IT, mobility, and Internet and cloud-based services and applications. http://lsvp.com/team/ravi-mhatre/