Venture Profile: Aneel Bhusri, Greylock

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

Angel Mehta: You moved up through operating roles at PeopleSoft to the position of Vice Chairman - which is unusual for a person that started out in finance. Tell me how that came to be?

Aneel Bhusri: After graduating from college, I joined Morgan Stanley as a Corporate Finance Analyst in New York for several years. I then went off to business school, and during the summer between 1st and 2nd Year I worked at Norwest Venture Partners for a guy named George Still, who happened to be on the Board of PeopleSoft. He is a terrific guy and is currently a managing partner at Norwest. He became a mentor and when I was coming out of business school, he encouraged me to go see Dave Duffield, who of course was the CEO and founder of PeopleSoft. So in 1993 I joined a small little HR software called PeopleSoft.

Angel Mehta: How long was your tenure at PeopleSoft and in what capacity did you start out? I'm interested because we don't often see someone move into a board position starting from the ground floor unless they were part of the original team.

Aneel Bhusri: I started out as Director of Planning…entry-level jobs, working for the head of business development. A few months later, I started working directly for Dave Duffield…in terms of tenure, I was an employee of the company from '93 to '99. From '99 to 2001 I was the Vice-Chairman and on the Board of Directors. Since 2001 have been on the Board of Directors. At the time, who would have predicted it would grow into such a large company? I think there were a couple of hundred employees back then, at most. In those early days, PeopleSoft was primarily an HR software company; they were not an ERP vendor yet.

Angel Mehta: Dave Duffield has always been recognized as a great leader…tell me about your experiences working for him?

Aneel Bhusri: Dave is one of the great human beings on the planet. Whereas you have so many egos in Silicon Valley, Dave doesn't have an ego at all. It's because of him that from its inception, PeopleSoft focused on doing business the right way. What I learned from him was that it was in fact possible to instill a culture around the principles of having fun, maintaining integrity and innovation and build a great company along the way.

The other thing is that Dave was fanatic about customers…

Angel Mehta: Doesn't every CEO say that, though? What made Dave Duffield so different?

Aneel Bhusri: Dave Duffield was fanatic about it. He would drum it into everybody's head that that was our purpose; that was our reason for being. He would tell customers that on his gravestone it would say, "Dave Duffield - he had happy customers". It was exactly the right culture. The takeaway for me was that with all the start-ups I work with, I try and instill that same customer-oriented culture. Bottom line, Dave was an incredible CEO.

Angel Mehta: Do you think PeopleSoft has been able to maintain that aspect of the culture? Generally, the larger a company gets, the harder it is to maintain the culture it had when the core team could touch every aspect of the business…

Aneel Bhusri: Absolutely. To this day, I think that's one of the core principles of the PeopleSoft culture. Craig Conway has done a great job after Dave. He has taken it from a billion dollar company to a $2 billion dollar company, while still retaining that customer-centric culture. That's not an easy thing to do.

Angel Mehta: So why did you make the decision to leave PeopleSoft? How did the move to Greylock come about?

Aneel Bhusri: By 1999, PeopleSoft got to a size where I just wasn't qualified to be part of the executive management team. I hadn't been at a company that large. I think the value I brought to PeopleSoft had to do with strategy and products, innovation and creativity… but that's not what the company needed at the time. The company needed someone like Craig Conway who was very very strong operationally and knew how to put all the right business processes in place. The part that I love and the part that I loved about PeopleSoft was the innovation…creating products out of nothing. In venture capital, that's exactly what you do. I had worked for George Still at Norwest the summer before going to PeopleSoft. It gave me a taste of venture capital and I really liked the business. At an early stage venture firm like Greylock, finance is almost an after thought. So for me, whether it was at the top of the bubble or the bottom, I really just wanted to be in this business. I'm four years into it now and am having a wonderful time.

Angel Mehta: Given that exits are so much harder to come by, I'm curious as to what fuels that enjoyment. Where does a venture investor derive gratification from when the liquidity events aren't happening as quickly?

Aneel Bhusri: I think now is a great time to be in the early stage VC world. There are some great entrepreneurs coming out with some very innovative and disruptive technologies. Back in the bubble everyone was trying to get something that was incrementally better so they could sell $10 million dollars worth of product and take the company public. Today, entrepreneurs are much more focused on solving really difficult technical problems - and problems like that are usually the basis for businesses that last a lot longer then many of the bubble-era companies. To be honest, I'm glad the bubble is over…I'm glad we're back to some sense of normalcy.

Angel Mehta: Let's talk a little bit about the application side of the software industry. Do you feel there is still opportunity for early stage application players that are not just a subset or an extension to one of the larger application vendors?

Aneel Bhusri: I think there is still opportunity, but it's more crowded and those opportunities are harder to find. We see a lot of start-ups that are just automating another business process that has not yet been automated by an ERP or CRM vendor…

Angel Mehta: You're referring to players like SAP, Siebel, Oracle, PeopleSoft, etc.

Aneel Bhusri: Right. And frankly, the startups that seem to be automating some random business process aren't that interesting because there's not enough defensible intellectual property in them. Then there are those application startups that tackle a specific vertical market problem…for example, a claims application for financial services. Product lifecycle management is an opportunity…There's also opportunity to capture information in a new type of application. We invested in a company that captures agreement data or contract data and tries to build a layer on top of ERP and CRM. So that's another interesting space, but it's still niche-oriented.

Angel Mehta: When you are evaluating business plans that are focused on just one vertical-application, how do you get over the problem of market size? By definition, isn't the startup going after a small market?

Aneel Bhusri: They are smaller markets, but there have been some great companies built pursuing just manufacturing, or just health care. In the case of financial services, there are a number of claims processing companies that became successful businesses. See, my goal is to find businesses that I can forecast up to maybe $20 to $30 million dollars in revenue. After that, who knows? We think this idea of finding a magical billion-dollar market that you can pursue is a fallacy. If you can get a business to $20-$30 million in revenue, then you see where you go from there and hopefully there's another market to go to or maybe your particular segment turns out to be a lot hotter than you originally thought.

Angel Mehta: Worse case scenario, you find an exit for the $20m business that gives the stakeholders a decent return…But to me that sounds incredibly contradiction. Most venture investors are insistent that you have to find a billion dollar market and insist on homerun investments only or it's not worth pursuing. It's the standard line for most of the investors I talk to…

Aneel Bhusri: Sure, I think that's conventional wisdom and works great - in hindsight. Unfortunately, it's not easy to figure out those billion dollar markets upfront or everybody would be a venture capitalist. [Both Laughing]. When I joined PeopleSoft, as much as I'd like to say I thought they were going to be a billion dollar Software Company, I didn't see it. No way. Who knew that HR software would turn to be the starting point of something that would turn into ERP and then turn into something so large? I saw it getting to a couple of hundred million dollars, but the way ERP and CRM took off… very few people could have predicted how big that market became.

You should talk to the early people at Cisco…I was at Morgan Stanley when Morgan Stanley took Cisco public. It was an interesting networking company, for sure, but no one would have ever thought it was going to be a company with market capitalization of over a hundred billion dollars! It was trading at about $200 million market cap for a long period of time. Then the Internet came along and Cisco had the right product at the right time… but you couldn't have predicted the Internet back in the early 90's.

That's the way Greylock views it and I think it's based on having been around lots of companies and realizing that some of our most successful companies weren't successful overnight. When we made the investment, there wasn't a billion dollar opportunity that was just sitting there in plain sight. The teams had to be flexible enough to navigate their way to large market opportunities and a lot of things just had to fall into place.

Angel Mehta: If you were a CEO of a best-of-breed player today, and I know you sit on the Board of a few, what would your strategy be for selling against the larger players? Can it be done in a market where there is so much uncertainty about vendor viability?

Aneel Bhusri: I would only invest in a company where the offering was clearly not on the radar of what the large guys were doing because I think, at that point, it's not worth playing the game. The big software vendors, even if they don't actually have the product but have it on a roadmap, can very easily tell prospects to 'wait 6 months and we'll have that product for you'. If I were a customer, I would wait for the larger player to make good on their promise. So to consider buying an offering from a smaller best-of-breed company, it has to be a very innovative product. There has to be a lot of intellectual property…for example, in the case of supply chain applications, there needs to be very intensive algorithms that aren't easily replicated. The products that we've invested in sit at the boundaries between ERP and CRM and Supply Chain. The boundaries between these areas are not naturally covered by a packaged suite. So we don't necessarily have to sell against the big guys. Unless you have an offering that is an order of magnitude better, I think is pretty much a worthless exercise to try and sell against the larger players.

Angel Mehta: Let's talk about the ASP business model…there was a tremendous amount of hype early on with Corio and US Internetworking. I know you were on Corio's board. The flame had dimmed down on that space but Marc Benioff ( has been in the public eye a great deal over the last 12 months and certainly seems to be succeeding in a way that other ASP's have not. Why do you think that is?

Aneel Bhusri: What Corio and what USI have done is very different then what the has done, though Corio is actually doing quite well and is starting to trend-up again - they turned a corner for profitability just recently. But in general, the space was over funded…there were too many competitors and everyone tried to grow too quickly. I think it was just a symptom of the bubble. The value proposition of Corio hosting other people's applications like PeopleSoft and SAP and Siebel applications and delivering it at a lower cost basis then what the customers can do for themselves is a terrific value proposition. We're finding larger enterprise customers who are doing it. You've seen IBM get into it, Accenture get into it…EDS is in it. Frankly, I think that the reason most of the ASP startups failed is because they didn't run themselves that well. They burned through too much capital and they were hoping that revenues would take care of their cost structure.

Angel Mehta: What do you think about

Aneel Bhusri: is a different model. They tend to focus in on smaller-size customers and they write their own software, and that's the big difference. I think it's a great model and a huge market opportunity. We've got a portfolio company called "RightNow Technologies" that's based in Montana that's similar to, with a focus on customer support as opposed to sales force automation. Right Now is doing very well.

The point is, tends to work well for mid-size organizations and departments of larger companies, which is a great market opportunity for them. But when you move upstream to larger customers, those types want the functionality from a PeopleSoft or a Siebel-calibre product and in the cases where buyers don't want to support running it in-house, they look at a Corio type player. The reason I think Sales Force right now has been so successful is they've targeted the mid-end of the market that, until recently, didn't have many offerings to choose from. High-end products were too expensive.

Angel Mehta: Do you think Sales Force has the ability to displace Siebel at the high-end?

Aneel Bhusri: I am skeptical. I think you'll see pockets - a company here, a company there, where they're able to displace them but for most if they believe that a hosting solution is the right one they'd probably go with the Corio/Siebel combination because they get all the Siebel functionality and they get the benefits through Corio as the host.

Angel Mehta: Let's talk some more about the concept of realism when building early stage companies. Have you read, "Good to Great?"

Aneel Bhusri: I have not, though I've read some of Jim Collins' other books like 'Built to Last' and 'Beyond. I have read some of his other books…like "Built to Last" and "Beyond Entrepreneurship".

Angel Mehta: Well the concept I wanted to discuss comes from "Good to Great" where Collins' states that great companies focus on a very simple business proposition that meets three criteria: First, that the executives are passionate about it, second that it is something the company can truly be the best at, and third that the business is commercially viable. But the interesting thing is that he says it usually takes companies about four years to discover what their hedgehog focus will be.

So what I'd like to know is, as a general partner, if an entrepreneur or management team sat in front of you and said, "We're not really sure what we're going to be the best at….it's going to take us four years to figure it out". Would you have the patience to wait that long? Would you still be open to the notion that this could be a viable company?

Aneel Bhusri: To wait four years? If it was an either/or, I probably couldn't wait four years. But I think what we would be comfortable with is investing a smaller amount of money in a start-up with the entrepreneurs who have this premise and are going into it knowing that the concept is going to get tweaked and adapted to fit the marketplace over time. It may take 3 or 4 years to get it absolutely right, but it doesn't mean that nothing gets done in the first four years.

What I typically see is that when you make an investment, the first 12 to 15 months is getting out that initial product. From year one to year two, it's getting the customer feedback about that first product and making the product more palatable to the next set of customers and the marketplace at large. From years two to four, it's making that process better and better and with that also figuring out the marketing strategy, the distribution strategy. For a company to get all of that right in the first two years is very hard to do. You don't have enough feedback from the market; four years is probably a more realistic time. It's a continual journey as opposed to a point in time.

Angel Mehta: What do you think about the notion of celebrity CEO? There have been a few studies published recently that question whether it really makes sense to bring a new CEO into a startup right away…. How involved do you personally want the entrepreneur to be after funding a company?

Aneel Bhusri: I think every situation is unique. By most standards, Greylock probably pursues the celebrity CEO less than others. You have to be careful about bringing in "the superstar" outside CEO and make sure that they don't screw up the company - it's happened more than once, usually because the new CEO either lacks vision, passion, or may not be a good cultural fit with the existing team. What you want is a CEO that fills the gaps that may exist with the current team…if it's a strong engineering team, you want a CEO who is strong in sales - and vice versa. My own personal experience has been to look for candidates that are hungry for their first CEO experience, that have all the tools but have not actually been CEO before.

Angel Mehta: Don't you find it risky to hire CEO's that have never done it before? I find most venture capitalists to be extremely risk-averse when picking the CEO…what is special about candidates that are first-timers?

Aneel Bhusri: They want to prove themselves. Some of the very successful star CEO's, they don't have that same hunger and passion as the candidates that are taking on their first CEO job. First time CEO's, provided they have the right skills, have got a real burning desire to prove themselves and build a great company…they want to leave their mark.

Angel Mehta: Would you pick someone who is hungrier with less competence over, let's say, a little bit less competence versus a guy who knew everything there was?

Aneel Bhusri: Maybe not less competence. I would hope for equal competence and less experience. I would take less experience. I'd make that trade-off between hungry and driven and wanting to prove themselves and have less experience then someone who has been there, done that before. Not to say we haven't had great success with people who have established track records…but you have to really understand the person's motivations to see why they actually want to go through that process again. Running a startup is hard - it's just a lot of work, 24/7 - and it's not for everybody.

Angel Mehta: If you could point to one critical thing that absolutely has to be in place to build a great company, what would it be?

Aneel Bhusri: I think one of the things I learned from the PeopleSoft experience in hindsight was that there's nothing that replaces a great market. No matter how great the team is, how great the product is, if you don't align yourself with a great market opportunity, it's hard to build a great company. That sounds simple but in some ways it's not so easy to remind yourself to do that. When I was with PeopleSoft, I think I took the experience of it for granted…

Angel Mehta: You mean you assumed that you'd be able to duplicate that same success every time?

Aneel Bhusri: Sort of, yes. But now, I realize how hard it would be and how unique the PeopleSoft experience really was.

Aneel Bhusri joined Greylock in 1999 from PeopleSoft, where he was named vice chairman (1999-2001) after several years as the company's senior vice president in charge of product strategy, business development and marketing. Feedback on the interview can be sent to:

Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at:

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