How AppDynamics went from $100M to $3.7B in 4 ½ years.
At AppDynamics, we took the company from a valuation of $100m to $3.7bn in just over four years. Speaking with Ravi Mhatre at Lightspeed, we agreed that what we learned along the way could help others, so I thought I would try my hand at writing one of these “blog things” that the young stars at AppDynamics keep telling me about, to share my thoughts on how we did it.
Clearly any hyper-growth company needs to have a fantastic product in an important market as a starting point. I was lucky enough to meet Jyoti Bansal and Bhaskar Sunkara five years ago and quickly realized that these two a.) had so much experience in a market that’s full of pain, and b.) had built a product that was perfectly placed to add real value above and beyond the existing market offerings.
They had already attracted great VC investment from Ravi Mhatre, and from Asheem Chandna at Greylock, and though revenues were still small, the early growth was impressive. When I met Jyoti, he told me that in spite of the early success AppDynamics had, plenty of companies have a great product and market and get VC investment accordingly, but very few reach their ultimate goals and potential. Many exceptional products will never be known. Jyoti wanted to become a multibillion valued company, and at this point the valuation was $100M. This is where we both agreed that to get there, we needed to add outstanding go-to-market execution to a great product and market in order to achieve that beautiful goal.
Our Go-To-Market Strategy: The 3 x Rs
As with any successful strategy, the go-to-market strategy we developed at AppDynamics needed to be simple enough to understand and execute at scale, but comprehensive enough and with enough detail and facts to ensure buy-in from everyone. We also needed a consistent approach throughout the company to align on the desire and execution to achieve greatness. As a result, we developed our strategy around what came to be known as the 3 x R’s, and then we trained our people, at all levels, around how to execute excellently against this strategy, on a daily basis.
The 3 x R’s represent Recruiting; Retention and Revenue, and we focused on them in that specific order. So let’s start with the first R, without which, the others are redundant.
At smaller, rapidly growing companies, you have none of the leverage that you do at your bigger competitors. Typically, in the early days, you have few customers, references, marketing $, partners, and overall market awareness. The people you hire need to not only accept this challenge, but relish this challenge. They need to not only accept and enjoy the task of taking on the bigger competitors with a fraction of the advantages they have, but also be good enough to overcome all those challenges through their personal skills and commitment, courage and capabilities.
Now of course, everyone knows they need to recruit so-called A Players, but at a pre-IPO, if you fail here, you fail. There are no safety nets provided by existing revenue streams or expand opportunities in existing customers or multiple and significant channel partners. You need to make sure your recruiting is as scientific, fact based and therefore risk-free as possible as the consequences of poor recruiting are so dramatic.
In my experience, the definition and measurement that different companies have regarding A-players varies widely. How do you know someone has the special qualities that make up the top 2% of people that can really move the needle for you? The starting point is to ensure everyone in your team understand how to qualify the two things that you cannot impact in people: Intelligence and Character. Neither of these qualities can be taught so if candidates don’t have them to the level you need, you are helpless to develop them. So you need to really focus on how can you fact check both of these crucial areas. What evidence is available to you so you don’t rely on your gut, which isn’t good enough, when the stakes are so high. What questions can you ask to make a $multi-million decision in a short interview window? You must answer these questions by looking at things like education, decisions candidates have made, special achievements, average earnings, consistent performance, meeting preparation, questioning skills. This is the stuff that provides factual evidence that a person is right, or wrong for you.
Special individuals achieve special things before they meet you. Beware of the “superstar” who didn’t accomplish much outside of work.
In addition, you must have a great sales pitch on what you are offering. You are selling your vision, your dream, and your challenges and you must be clear on the huge rewards available to those who succeed. I often found that the bigger the challenge, the more an A-player will be excited as they recognise that with big challenge comes big opportunity. And it’s not just about money. Special people want a vision, they want development, they want to be part of something amazing, want to make an impact, want to be part of a team that can become famous — they must see that these things are possible with you. And clearly, if they do and you hire well, your vision becomes self-fulfilling as you have the people necessary to make it happen!
And remember, If you fail here, go straight to jail, do not pass go, do not collect £200, your game is over. I wonder how many companies truly give this specific topic the strategic time and focus it needs?
Once you have these mythical A-players, you had better keep hold of them. Attrition will kill your hyper growth as sure as anything else. If through poor recruiting and/or poor retention you are constantly backfilling existing heads, you can never scale your business. So therefore it is crucial you think clearly and have a strategy around retaining the talent you have secured. The first step to this is ensuring your people are constantly being developed. This can be done corporately via important new hire trainings, then locally through a regular cadence of skill development training, and then tactically, day-day, by local management who are best in class regarding the functional skill required to do any job. The key here is to recognize the importance of this to A-players and have plans in place, at all levels, to execute.
The second key step to retention is the culture you are driving, and ensuring that everyone is connected and feels ownership of this. At AppDynamics, we wanted everyone, in all roles, to have clear opportunities for improvement and career progression, to be challenged to improve (A-players love this), and to be able to earn significantly if they over-achieve significantly. Again, crucial strategic decisions drive the right behavior here. Having aggressive compensation plans, regular communication of what works, regular recognition of success, the right management to individual contributor ratios (too high and individual development is impossible), knowledge of the personal drivers for all those in your team. All these things contribute to your retention strategy by ensuring development and motivation is a consistent part of your business and all leaders are focused here, all driving the environment you want.
At the end of the day, true “lions” want to run with other lions. They want to be pushed, they want to win, they want to learn and they also want to know that they will be supported through the tough times, as any amazing achievement will, for sure, have setbacks and disappointments along the way.
Your culture needs to provide this seemingly contradictory convergence of work ethic, development, challenge whilst also providing the necessary support people need as they reach for the stars! It’s not easy, but if it was it wouldn’t be great! At AppDynamics, we had attrition below 10% which is three times less than industry averages, and we did this whilst having average earnings in all roles that are double industry averages. Another great way of driving retention is through promotions from within. In just 4 ½ years we’ve awarded over 40 promotions across the EMEA region, placing bets on many who didn’t have the experience that the next job would have traditionally asked for. Because we’d recruited the right people, their character and intelligence meant that each promotion led to huge overachievement in the next role and drove loyalty and passion that feeds and drives the culture. This was a key tenant of our ability to scale as quickly as we did.
Ultimately, this is how any business will be measured, which is why a lot of people focus primarily in this area. Yet without the foundation of great people, who are motivated to jump out of bed every morning to achieve their goals that are aligned with yours, your chances of consistently smashing your revenue goals are low. But people alone is not the answer either, even when you have those people, you need to guide them in the right way based on the hard facts that you know will drive success.
At AppDynamics, we are data junkies. We analysed all the different fact based activities that drove success, and also matched them against the things that didn’t work. We carefully analysed how many specific opportunities any individuals needed to be working on at any one time in order to be successful, as oppose to traditional views of 3–4 x pipeline which is more open to interpretation. We know how many technical validations are needed at any one time to drive success, and what activity rates are required to succeed. In short, we built a scientific model that, if executed, would guarantee success, based on historical data, not gut feel. It’s the same way the best sports managers know what plays and tactics are more likely to result in a goal.
This allowed us to drive a fact based execution plan so there was little time wasted on debating different courses of action — the facts always win! Then we maintained a cadence where we could review the execution of each individual against these Leading Indicators for Success on a weekly basis. Therefore we all, as a team, could accurately predict how we would perform in coming quarters, and consequently had the chance to course correct in a timely manner if things weren’t on track to secure the required result. In a team of Lions, who all are driven by your shared mission to grow and succeed, this consistent review of what it takes to win, in a supportive and positive environment, is always welcome.
The Final Foundations
Parallel to the 3 x R’s strategy, which focuses heavily on people, it’s critical you have the correct and consistent tools for people to use to help them drive success. A good example of this was the focus we had on customer success. We are maniacal in this area and invest heavily in ensuring customers get what they want out of using our technology, and more. Backing this up was a companywide method of understanding the business value a customer wanted to achieve before any investment, at a very detailed and granular level, and then aligning the implementation to these specific areas of value to ensure a successful and happy customer base. This standard and consistent approach to building and executing value for our customers was in no small part responsible for our huge expansion revenue streams and high customer retention rates.
Finally, the overall structure of a business at startup stage needs to evolve to become a public company. When we appointed David Wadhwani as our new CEO he immediately noticed that there were many times, especially in our early days (the days of the street fight) where it was clear the “effort : win” ratio was not sustainable for long term, predictable growth. To address this David worked closely with employees at all levels and across Geo’s to understand autonomy, support and efficiencies that were needed. He augmented a strong management team and put processes in place to survive and thrive as an independent public company. This wide level of collaboration is critical to success. Implementing processes from an Ivory Tower will immediately put obstacles in place that make recruitment harder, retention at risk and revenue more difficult. David was then able to work with the AppDynamics board to navigate to a sale with Cisco while also running a very successful IPO roadshow process. Meanwhile, the A Players in the field reaped the benefits but maintained the autonomy to thrive in their “business as usual” rhythm uninterrupted by big company policy.
And in the end, we had a team of people that, by focussing relentlessly, across all geographies and functions, on these three core strategies, managed to create a company that, with significant competition of all shapes and sizes, was ultimately acquired for the highest multiple in software. But more than that, I believe we helped a lot of AppDynamics employees change their lives in many ways, through experience, knowledge, confidence, money and many other ways. That is ultimately what I will take from this part of this beautiful journey. The thrill of creating something amazing from scratch, the excitement, the highs and lows experienced along the way, the way everyone rallied around when things were looking tough and celebrated together when things were good, and the way a team of like-minded people worked relentlessly together to achieve their crazy dream.
I make no apology referencing some of the key individuals on this journey like Steve McCluskey, Ismail Elmas, Tom Levey, Dali Rajic, Dan Wright, Amber Coster, and David Wadhwani and I apologise to the hundreds of others I can’t mention here but who deserve to be. It has been hard, tiring, sometimes hopeless, sometimes exhilarating, never boring and ultimately, something we will all be proud of forever.
I hope some of this will help you as you follow your dreams.
This is a guest post from Lightspeed portfolio company, AppDynamics.