Transcript What They Don’t Teach You in Graduate School Scott Dietzen, Ph.D. CTO, BEA Systems & CMU CS ’92/ CMU Applied Math/CS ’84 [email protected].

What They Don’t Teach
You in Graduate School
Scott Dietzen, Ph.D.
CTO, BEA Systems &
CMU CS ’92/
CMU Applied Math/CS ’84
[email protected]
1
Dedication And Acknowledgements
• This talk dedicated to the memory of Bruce Nelson, CMU CS ’82
– http://www.cs.cmu.edu/about/development/aboutnelson.html
• Why I volunteered (i.e., why I felt sufficiently presumptuous)
– Bruce help plant the seeds that inspired my entrepreneurship as well as
my time on the dark side (working in marketing & sales)
– I’ve had some modest success as an entrepreneur
• Transarc  IBM (Principal Technologist)
• WebLogic  BEA (V.P. Marketing – Ha!, CTO)
• Acknowledgements
– I plagiarized heavily from Bruce’s talk
– Borrowed some content from top-tier VCs
• Special thanks to Redpoint, Accel
– Borrowed some content from fellow entrepreneurs
• Special thanks to the WebLogic team
• And Paul Maritz (Lessons Learned at Microsoft)
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What They Don’t Teach You in Grad School ’03
2
The Missing Syllabus
• Technology adoption cycle
• The hurdles to commercial success
• Why non-technical issues matter
• Why technologists feel underpaid
• High-tech company organization
• Start-ups
• Venture capital
• Managing for success
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What They Don’t Teach You in Grad School ’03
3
Classic Technology Adoption Curve
Adoption
Client/server
RDBMS
Late adoption (cash cow)
Mainframe,
AS/400
software
Mainstream adoption
Web
application
platform
Crest of hype
Web services
Early adoption
Black lash
against hype
Innovation
Scott Dietzen
This is the best case scenario--all technology aspires to be legacy!
At any point on the curve,
new technologies may wash out
(few make past each phase)
Market Growth/Consolidation
What They Don’t Teach You in Grad School ’03
Time
4
High Tech Efforts
 For success
 Laser focus on specific customers—not theoretical—
and vivid understanding of pain and needs
 Clear understanding of needs hierarchy (what are they
buying? Where is the pain/need in their priority stack?)
 Most typical downfall
 Cool technology, but insufficient business value
 Too high-level a value proposition—doesn’t connect with
new spending realities and specific pain points
 Unrealistic goals – Time/money insufficient to reach
demonstrable value
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5
Why High-Tech Efforts Fail (Cont.)
• Miss technology sea changes
– Proprietary networks (SNA, IPX, AppleTalk  IP), SQL (Unify)
– Java/J2EE (NetDynamics, Kiva, ATG, BroadVision, …)
• Too much complexity for mainstream adoption?
– DCE, CORBA, SAA, ATM, Infiniband
– Web platform (Web services, J2EE, .NET) still at risk
• Weak execution
– Team comes apart or doesn’t come together
– Focus wanes
– Not sufficiently responsive to change
• Ferocious competition
– 40+ web application server vendors  3 viable today
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6
Why Non-Technical Issues Matter
• In the “real” world, technology is the means to the end –
not the end
• To change IT in the “real” world, you need to
make the business case to the technology end-user
– Define compelling value proposition
– Articulate the return on investment (ROI)
• There is a very high hurdle for doing this
– Think about receiving phone solicitations at your home
• This is why marketing and especially sales
are so highly-valued
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7
Why Do Technologists Feel Underpaid
The intellectual level needed for system design is in general
grossly underestimated. I am convinced more than ever that this
type of work is very difficult and that every effort to do it with
other than the best people is doomed to either failure or moderate
success at enormous expense. –Edsger Dijkstra
Because they don’t understand the game
• Technologists often feel sales and especially
marketing are trivial
• But in most companies, R&D is <5%;
even in high-tech R&D it is generally <20%
• If this were not an optimal model,
then the free market would correct it
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Technology Company Organization
Corporation
Finance and
Administration
Engineering
Research
(Huge Companies)
Marketing
Sales
Manufacturing
Services:
Consulting and
Support
Advanced Development
Customers
(Most Companies)
(Solvent Companies)
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How Departments Contribute Value
Marketing
Defines, targets and articulates value (specifications and collateral)
Engineering
Refines and implements value (designs and tunes products)
Manufacturing
Physically creates value (products)
Sales
Creates desire for and demonstrates value (explains products)
Service
Preserves, transfers and enhances existing value (care and
customization)
Finance and Administration
Administers the value-adding machine (company and customers)
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Marketing
Marketing represents the company to the
“target” customer
• Strategic marketing
– Directs product strategy and often corporate strategy (in
conjunction with company thought leaders)
– Owns the company business plan
– Product/technical marketing
– Pricing, channel strategy, competitive strategy
• Tactical marketing
–
–
–
–
–
Scott Dietzen
Public relations
Demand creation (finding/qualifying new customers)
Public face (literature, top-level web-site, events, advertising, etc.)
Strategic partnerships
Company and product naming/corporate identity (Ouch!)
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Marketing/Engineering Interaction
With respect to Engineering, Marketing:
• Determines product lines and families
• Specifies individual products externals
at a high-level
– Engineering owns the internals and the details
• Is usually responsible for planning product
configurations, packaging, and documentation
• Sets prices, options, and schedules product
introductions
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12
Sales
Sales represents the company to the customer (and
vice versa)
• Actively approaches and cultivates new customers
• Demonstrates a products added value and helps customer internal
champions overcome objections
• Is customer’s liaison to the company for pre-sales support, postsales product improvements, and win/win business dealings
• Forecasts business bottom-up
– Revenue forecasts are prime corporate feedback loop
• Note: Sales channels are typically very expensive
(This is a fundamental start-up conundrum)
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13
Marketing/Sales Interaction
With respect to Sales, Marketing:
• Forecasts business top-down
(Sales goes bottom up)
• Selects distribution channels (in conjunction with Sales)
– Value chain can be complex (Value-added ISVs, SIs, OEMs)
– Some product requirements come out of channel model
• Provides sales tools to sell (transfer genuine confidence)
company and product value proposition
– Literature, advertising, demos, benchmarks, competitive analysis,
product training, roadshows, seminars, and so on
• Conducts sales training (nontrivial)
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What They Don’t Teach You in Grad School ’03
14
Life of a CTO
Extremely inter-disciplinary role
• Spend time with
– Customers and partners via sales (50% in my case)
– Industry orchestration (Standards)
– Engineering (defining release themes and refereeing disputes)
– Corporate strategy/governance
– Evaluating start-ups/ISVs as partners/acquisitions
– Investors and financial analysts
– Industry analysts and press
• In practice
– Meetings, presentations, phone calls, and email
– Stretched a mile wide and ½ an inch deep
– Far more grunt work than deep thinking (worse than academia)
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Comedy Break #1: Top Ten Signs
You May Be Traveling Too Much
(All true stories)
6. You have to go to the hotel front desk to have them look
up your room number (since it’s not on the plastic key)
7. Flight attendant’s greet you by name
8. You’ve eaten nothing but airplane food for more than 24
consecutive hours
9. You read the hotel stationary to find out what city and
country you’re in
10. You have a nightmare about being on an airplane, and
then you wake up on an airplane
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Comedy Break #1: Top Ten Signs
You May Be Traveling Too Much
(All true stories)
1. Your neighbor mows your lawn for you
2. A United pilot tells you you’ve been flying ½ as many
miles per year as he does
3. You work a full Wednesday in Japan, fly to the states at
the end of the day, and arrive in time for work –
10am Wed. morning!
4. A constant state of sleep deprivation ensures that you
instantly adjust to any time zone
5. Not only can’t you remember where you parked, but you
don’t even know the make, model, or color of your
rental car (worse in a blizzard)
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17
Why Do Technologists Feel Underpaid (Redux)
Because they don’t understand the game
• Responsibility for product and company success is paramount, and
rewarded accordingly
• Accurately defining the product for the target market is generally much
harder than building it
– Domain expertise is often more valuable than programming skills
• Working with others (leading and managing) is harder
than programming
– Leaders are most highly valued, then managers,
then individual contributors
• Asking for money is hard; orchestrating a technology purchase can
require months of grunt work; and negotiating enterprise licenses can
be excruciating
• As a result, the biggest bucks go to the management team and to sales
people on commissions
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Start-Ups
Successful high-tech start-ups (generally)
• Identify existing target market
• Have channel of distribution to that market
• Have unfair technology advantage
• Have time to market advantage
• Have tremendous growth potential
Start-up employees
• Are freed from maintenance/legacy
• But must work very, very hard
• Are usually substantial stock holders
• Have to wear multiple hats
• Must be able to work well on a team
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Evaluating A Start-Up
• Evaluate from an investor’s view point
– Review the business plan, not just the technology
– Corollary: Avoid the technically interesting, but
commercially unviable
– Ask hard questions about risk and competition
– Under non-disclosure, get as much detail as you can
about financing structure (this may be tough!)
– Meet with angle investor’s/VCs if you can
• Most of all – Do you love the team,
love the technology, and
have fire in your belly!
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20
Joining A Start-Up
• Equity considerations should
be primary
– Expect to take a significant
pay cut over what you could
make elsewhere
• Translate equity offers into
percentage of the company
(Shares outstanding range
from 8m to 20m+)
– Founders should expect
single digit percentage
– Lead founder often in
double digits
– CEO 5%
– Management team 2%
– Senior engineers <1%
(even early on)
Scott Dietzen
Fractional Ownership of an
Typical 1st Round Tech Venture
45%
Investors
20%
Founders/
wizards
10%
Management
team
15%
1st year
employees
10%
Later
employees
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21
Premier Venture Capital
Why?
• Defacto seal of approval for company/product
• Trade share of ownership for resources
• Let the pro’s finance the money-losing first years of company
development (Your risk should be opportunity cost)
• Get into the network
• Early warning about competition
• Help with recruiting the management team
• Easier to get money down the road
• Smarter than “industry” money
Why not?
• Dilution
• Interference/loss of control
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VC Profile of an Early Winner
Operational excellence
A real and defensible business




Insightful & compelling value
Real business & business model
Defensible value proposition barriers
A business that works at scale




Translate strategy to action
Focus, honesty, discipline, measures
Speed – including “time to decide”
A bias for action – “knee of the curve”
Leadership – values & culture
 Management TEAM
 Open, respectful, honest communication
 Reverence for the customer,
fear of the competition
 Aggressive, thoughtful, adaptive, reflective
 Optimistic, hardy, creative, tough
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Venture Capital Home Run Illustration
WebLogic Funding
• Employee option strike price starts at zero (founder)
and goes up to $.33/share
• Angel financing: Regis McKenna, Frank Caufield, Ali Kutay
• First (and final) round in ‘97: $12.5m in venture and
strategic industry funding
– VCs: TL Ventures & Bay Partners (Both got board seats)
– Industry: Intel and Cambridge Technology Partners (SI)
• Sale to BEA 10 months later
– Approximately 10X+ return on investment (home run)
– Grand slam if they held (BEAS goes from $25 to ~$350, split adjusted)
BEA Funding
• First (and final) round in ‘95: $50m from Warburg Pincus!
• As most of the limited partners held, their ROI reached 100X
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Current VC Environment
 Conventional wisdom
 Back to basics
 Dumb or bubble money has left the market
 Kind of like the early 90’s
 Reality: Nothing basic about pounding
hangover from the excesses of the late 90’s
 Major overhang of companies funded in the
boom
 Still too much capital flooding the obvious
categories
 History suggests that the downturn could be
much more prolonged
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2002 So Far… Like It’s 1998
Deal Flow and Equity into Venture-Backed Companies (annual)
Amount
Invested
($B)
6100
6,000
4510
$100
5,000
$93.9
4,000
$75
3034
$50
1896
2174
$6.8
$9.9
2509
3,000
$49.0
$34.6
1313
$25
Number
of Deals
$12.8
$17.7
1558
2,000
$14.6
1,000
$0
0
1995
1996
1997
1998
Amount Invested ($B)
1999
2000
2001
YTD02
Number of Deals
Source: VentureOne
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80% Of Dollars
Directed At 2nd And Later Rounds
Investment by Round Class
% of Amount
Invested
100%
80%
Later Round
60%
Second Round
40%
First Round
20%
Seed Round
0%
1995
1996
1997
1998
1999
2000
2001
YTD 02
Source: VentureOne
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Environment
Uninvested Venture
Capital
40
6
Accumulated Capital
Over-commitments ($B)
35
5
Years of Uninvested
Capital
30
4
25
Years of Uninvested
Capital at 1995
Investment Pace
20
3
15
2
10
1
5
0
0
1995
Scott Dietzen
1996
1997
1998
1999
2000
What They Don’t Teach You in Grad School ’03
2001
28
Venture Capital In ‘03
• In 2000, 653 venture funds raised $107B
• In 2001, 331 venture funds raised $40.7B
• In 2002, 108 venture funds raised $6.9B
• Moreover, 26 firms gave $5B back to their limited
partners
• So net new $1.9B go into venture funds in ’02
(95% drop!)
• Total over-committed capital for all private
equity is $100B!
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Technology Investment Cycle—4
Phases
1967-1969:
Semiconductors
1981-1983: PC &
Workstation
1970-1971
Bubble
(~2 yrs)
1996-1999: Internet
FreeFall
1984-1985
2000-2001
(~2 yrs)
1961-1966
Firming
(~5 yrs)
1975-1980
Bottoming
(~3 yrs)
1990-1995
Scott Dietzen
1972-1974
1986-1989
Today…
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Bottoming—Company Hangover
From 1995-2000:
14,463
978
Companies funded
Went public
1,529
Were acquired
1,180
Went out of business
10,776
Remaining
Mortality effects, me-too effects still working their
way through the system
Source: Venture Economics; Venture Source
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Internet Investment Settles
At Early Levels
Equity Investment by Internet Dimension
Amount
Invested
($B)
$10
$8
Business Services
Software/ Database
$6
Infrastructure
$4
ISPs
Content
$2
Electronic Commerce
$0
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
Source: VentureOne
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Industry Allocations Fluctuate In 2002
Equity Investment by Industry Sector
% of
Investment
100%
Information
Technology
80%
60%
Healthcare
40%
Products &
Services
20%
0%
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
Source: VentureOne
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Software Clearly Dominant In 3Q’02
Percentage of Overall Venture Investment, by Industry
Retailers 1% Other 1% Biopharmaceuticals
Services 9%
13%
Products 1%
Healthcare Services
2%
Prod. &
Serv.
Healthcare
10%
24%
Medical Devices 8%
Medical IS 1%
Software 32%
Info. Tech.
65%
Communications 16%
Semiconductors 9%
Source: VentureOne
Scott Dietzen
Electronics 5%
Information Services
2%
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What VCs Want
• VCs generally are not anticipating disruptive technology
(e.g., internet, optical networking) revolutions near term
• Broad, hugely ambitious plays are out;
More realistic narrowly targeted (segmented) plays are in
• So don’t get too enamored with technology
• The game today is applying technology to a business
problem that customers will gratefully pay to solve!
– No more “Just get the eyeballs today, and figure out how to
monetize later”
• Corollary: Technology is only a small part of the business
plan. Compelling marketing and selling strategy are
essential
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What VCs Want (Cont.)
Funding to Milestones
Idea is
Feasible
Beta or FCS
Model is defined
and proven
Valuation
Risk (ß)
Capital
Seed
Scott Dietzen
R&D
Ship
What They Don’t Teach You in Grad School ’03
Expansion
36
What VCs Want (Continued)
• Make the business case – What is the customer’s return
on investment (ROI) that will allow you to defy gravity
• Industry/domain expertise on management team is
mandatory!
• Strong syndication
– Money was a commodity in the bubble. No more
– Other smart, well connected VCs in the deal
– Angels also key
– Shared risk or herd mentality?
– Entrepreneurs need multiple VCs on the hook!
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Mind of a Successful Entrepreneur
• Late ’90s (Bubble)
– “Go big or go home”
– Build infrastructure,
spend ahead of the
curve
– Get “buzz”
– Time to market is the
key
– Raise only the
minimum required;
ROE is a function of
time
– Optimize for the
upside
Scott Dietzen
• Today (Reality)
– “Survivor”
– Milestone-based
spending, lag $ behind
the curve
– Get (named) customers!
– Cash flow breakeven is
key (min. team, share
hotels, gear on EBay, …)
– Raise enough to get to a
significant milestone;
ROE is a function of
tangible business
progress
– Protect the downside
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Start up/VC Summary
• Despite the economy, major shifts continue to
occur
• In many ways, great time to be starting a
company
– Costs are down dramatically
– Talent is available
– Luxury of being out of market scrutiny
• But, caution and prudence still rule the day
– Industry exceedingly well funded
– Business fundamentals not a “V” recovery
• Experience matters
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Comedy Break #2: Sabbatical
Actually Helped My Career!
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Managing For Success
So you’ve got money in the bank. Now what?
Three golden rules:
• Cash is your life supply, manage it ruthlessly
• Get the first version out the door quickly...
don't wait for the perfect product
• Bad decisions happen;
recognize them, fix them quickly, and move on
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Managing For Success I
• Take great care in team building
– For start-ups/new product launches,
only small teams of world-class talent will do
– Ensure critical team roles are filled
• Architect – Sweats the content (big picture and details)
• Manager – Sweats the process
• Product manager – Customer/scenario/solution champion
• The “Cheer leader”/“Ass-kicker” – Demands/inspires excellence
and commitment
– Some overlap possible
– Success depends upon excellent teaming among four roles
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Managing For Success II
Establish key scenarios/priorities to guide decision making
around product development/releases
• Product releases should have a small (2-4) number of themes
• Do’able in reasonable timeframe
• Validate themes with customers
• And then “get ruthlessly and relentlessly behind them”
• Use scenarios to allocate resources
• Use scenarios to organize engineering
– Push ownership down as low as possible
(to the natural scenario “owner”), but no lower
• Focus, focus, focus—
High-tech projects can easily get distracted (the earlier in
the life-cycle, the greater the danger)
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Managing For Success III
• Acquire with extreme caution
– For people and IP?; or
– For market/customers?
– Know who is going to manage it beforehand
– Carefully balance
• Assimilation
• Preservation
• BEA has done 30+ acquisitions, but only a couple major
waves of change (“Built Entirely on Acquisitions”)
– Tuxedo provided initial engineering culture
– WebLogic first major agent of change
– CrossGain/WestSide second major agent of change
(still running its course)
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Start-Up Lessons
• BEA/WebLogic won because some big bets paid off
– Web would push more business logic to server-side
– Java was a great language for server-side programming
• Java on the client would drive Java on the server (Mostly wrong!)
– Java VM architecture would prove to be dislocating agent
for existing OLTP architectures (Tuxedo, CORBA)
– Need a API standard for the server – Enter J2EE
– Bundled suite of platform services  Web application server
– Free trial web download (over sales objections)
• The jury is still out on BEA’s future big bets
– Can we continue to carve out a niche between Microsoft and IBM?
– Can we extend web/Java platform to encompass integration –
EAI, B2B, UI (portal), data (XML Query)
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What’s Hot: Web Application Platform
• Complexity of programming business applications
• Complexity/performance of XML processing
– Semi-structured content repository meets file system and database
• Complexity of application integration
– More semantic models of XML data mapping/transformation
– Choreography/orchestration missing
• Complexity of operations, administration, and management
– More adaptive (self-configuring, self-healing) systems to meet
a quality of service
•
•
•
•
Business activity monitoring (BAM)
Security infrastructure (may be oversubscribed)
Wireless (historically oversubscribed, still working off excess)
Data center consolidation on disposable hardware (may be
oversubscribed)
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Recommendations for
The Would-Be Entrepreneurs
• Can you be a BSO (blind, stupid optimist)?
• Learn how to write and speak well
• Learn to be a consummate team player
• But also be a leader – Step up and take responsibility
• Spend some time working on the technology
transfer/business side (technical marketing, technical
sales, consulting)
• Consider auditing classes in entrepreneurship at GSIA
• Learn to be comfortable making decisions from
incomplete information
• Have some fun now (while you still can)
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Bruce’s Final Oral Exam
• Purely technical issues are of tertiary importance. Predicting
technology evolution and delivering high-added value to the
business are first and second
• CS graduate school most typically blissfully ignores this
• Start-up companies have the best wealth potential, but require
the highest effort, discipline, commitment, and risk
• The greatest technical influence comes out of connecting
technology to the business (technical marketing, product
management, CTO, etc.)
• Compensation is commensurate with responsibility and ability to
assimilate incomplete information and act decisively upon it
• Many Ph.D.’s with maturity become great technical managers.
Far fewer become great marketeers or executives
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Thank you!
Value-added contributions
most welcome
(If this can be made
sufficiently valuable,
then I’d like to do it annually)
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49