Why Your Startup Fails to Scale ($12B+ Founder Explains) | DevRev, Dheeraj Pandey

1. 0:00 – 1:38

   Intro

   1. DPDheeraj Pandey0:00

      A feature alone is not gonna get me $100,000 from a customer. One of the reasons for our success is under-promising and over-delivering. This is the core of repeat business. If your existing customers are not paying you more, then you're basically just selling and running, which means hunt, hunt, hunt. But the balance between hunting and farming, which is new customers versus getting more from existing customers, Jeff Bezos has called it, like, the flywheel effect of companies. You know, you need to add new logos, but you need to go make money from existing logos. I think that tests the real mettle of a company. I'm a big fan of Will Guidara. He's a restaurateur who actually had two of the most famous restaurants in the world, and he talks about this concept of unreasonable hospitality, giving people way more than they expect. That is where great entrepreneurs differentiate from the mediocre ones. [instrumental music] My name is Dheeraj Pandey. I'm the co-founder and CEO of a company called DevRev. So we are in the business of blurring the lines between the public wisdom of the internet and natural language wisdom with the enterprise wisdom. That's basically what DevRev is all about. Before this, I had started a company, Nutanix. We were the fastest to a billion dollars in revenue and took it public in seven years, record time, on Nasdaq, was the largest tech IPO of 2016. I ran it as a public company CEO for almost five years. Then I realized there's a big opportunity opening up in AI, which is how DevRev started almost four years ago. I also sit on Adobe's board. I'm on the audit committee there. And last but not the least, a big student of both AI and design.

2. 1:38 – 2:41

   Where a Founder's Journey Begins - From the Poorest State to a Billion-Dollar Path

   1. DPDheeraj Pandey1:41

      I had a fairly dysfunctional childhood. I grew up in the poorest state of India. The Himalayan rivers, the seasonal rivers that would flood half the state, half the year was flooded. It was the most lawless state, but the poorest state. That state's GDP per capita is only as much as Sub-Saharan Africa, so you can imagine the level of poverty that actually I saw. That's what catapulted me to actually get out of the state and do something. Back in the day, you could only be a good engineer or a good doctor. There was no third profession. I picked engineering. Luckily, when I was growing up and I had to pick, uh, the field of engineering, the internet had just happened. This was 1993, 1994. Computer science was gonna be the next hot thing, just like AI, which is the new computer science, uh, is hot right now. I built my entire career just being shaped around the internet. I can't stay in India right now, but back in the day, the only option was to leave the country if you're an engineer. I have to be in this bubble to know what working in the industry means. A big

3. 2:41 – 3:14

   How a Dysfunctional Childhood Shapes a Founder’s Mindset

   1. DPDheeraj Pandey2:41

      part of this is to have seen dysfunction as a child. The worst is not bad enough. I mean, if you've seen sad and disappointing days as a child, I think it actually carries through with you. But it also means you can actually take care of tough situations, and entrepreneurship is a lot of that. It's a lot of highs and lows, and it's important not to get too sad with the lows, which also means that you can't be too happy with the highs. And staying on that average line and how you modulate your emotion is the way you will deal with a lot of failures.

4. 3:14 – 4:16

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5. 4:16 – 5:45

   How the Biggest US Tech IPO Took Him Back to Day One

   1. DPDheeraj Pandey4:19

      Only direction when you start a company is forward. That's the best you can do. I can't thank you enough. I mean, I'm, I'm not gonna ac- Nutanix was my first startup. I think the core of Nutanix was to really do something around data management. We said, "Look, we are good at data-intensive applications. We reliably manage data at fast speeds like no one else. Hey, we can ship software to you where your data centers will look like Googles and Amazons and Facebooks and so on." And we were also trying to bring commodity hardware, which was Taiwanese equipment, to the enterprise. Before that, people were buying hardware from Dell, HP, IBM, all these branded hardware companies, EMC, NetApp. So they were all into shiny hardware. And you're like, "No, no, no, no, no. You can take the same approach that Amazon, Google, Facebook take. Really source hardware from Taiwan, bring it to the US, and put software on top so you have a commodity hardware and a pure software running on top of it." First four, five years was extremely problematic because the hardware was flaky and unreliable, and the software needed to overcompensate for that. So we took our time to really make the software compensate for a flaky, fragile hardware. In fact, our company was almost shut down three times. But at the core, the big thing in my head was that you're on a tightrope, and you're walking a

6. 5:45 – 6:58

   Founders Walk a Tightrope - Never Turn Around

   1. DPDheeraj Pandey5:45

      tightrope, and you have to cross this valley. When you're halfway through, you can't turn around. You'll fall if you turn around. Any new product that you launch, any new initiative, you have to think about plowing through. Now, sometimes moving forward might mean shutting it down completely. But to actually say, "I want to go back," this direction is the worst thing that entrepreneurs actually do. So we did have a couple of big pivots. The only constant in building a company is change. So if you can embrace change and you can make it seamless, and you can be a little bit ahead of the market, and you have to be really good at looking around the corner. And that means listening because when you hear something from the market the first time, as a stubborn entrepreneur, you'll say- Oh, that's an aberration. When you hear it the second time, now it's a coincidence. When you hear it a third time, it's a pattern. You need to understand how to recognize patterns and look around the corner, be at least six months ahead of what eventually will be a hard pivot, and see if you can make soft pivots into that direction. There's no point just making ninety-degree turns or a hundred-eighty-degree turns if you can actually make softer turns to the same degree that you would have otherwise achieved. I

7. 6:58 – 7:52

   Don’t Go Where the Puck Is. Go Where It’s Going

   1. DPDheeraj Pandey6:58

      think if you look at the idea of Nutanix, it was where the puck was as opposed to where the puck was headed. Because it my- the first idea, my first startup, I had started to really take technology risk, but not a market risk. Because the market by 2012 had already seen cloud, and the fact that consumer cloud companies were saying, "Look, you don't need to own infrastructure if you can stream the infrastructure." It's like what happened with music eventually, was like, you don't need to own songs. Market for Spotify was already happening, and the public cloud was that version for infrastructure. So the puck was headed to streaming, and we were still at iTunes. And on-prem software was basically headed in that challenged market where you'd constantly have to think about, "Do I need to own or can I stream? Do I need to own? Can I stream?" So the idea of Nutanix was where the puck was, and it was a technology risk, and we got paid for it for ten, twenty million dollars. That's the valuation of Nutanix.

8. 7:52 – 9:59

   To Build a Big Business, Take Market Risk

   1. DPDheeraj Pandey7:52

      But to really build a hundred-billion-dollar business, you had to take a market risk. This is something that all entrepreneurs will actually face, being an investor but also being an operator, and when you do your company, you're doing both in one. At some point, you might have to decouple those, where you become an investor in your current idea and then become an operator of a new idea. Around 2020, when COVID happened, is when I was like, "Okay, what's the next chemistry we can bring together?" And it really happened to be around business software. When GPT came about, by this time we already had our own vector database. We had built our own vector database to actually do search because we knew search was the first killer app for anything intelligent. Now, what GPT has given us is the ability to ask it questions and bring the natural language wisdom that otherwise we would have struggled to build. But at the core of it, the enterprise data piece of it is the biggest challenge. Because I can't do anything in the, in the business in a, in an enterprise software environment with Wikipedia's knowledge or Internet's knowledge. I need to bring the knowledge of the enterprise in a coherent whole, which is what a knowledge graph actually brings. And to take this knowledge graph and mix it up with the wisdom of the Internet is what we really do. So the biggest bang for AI is building a Perplexity-like thing for all enterprise assets, and that to me was the light bulb moment. In the absence of the public cloud, we could have been a hundred-billion-dollar company. But in the presence of the public cloud, we'd be hovering around the twenty-billion-dollar range, you know, because the market has moved. If technology doesn't integrate things, bring the chemistry, as opposed to just new features and new ideas, it has not done its job. Big ideas are about alchemy. It's about mixing things together and making it look like a more robust solution. Even like a chemical solution is about bringing chemistry together. And bringing a lot of these things together is where a lot of, uh, value gets created. Product-market

9. 9:59 – 11:18

   Product-Market Fit is a journey, not a destination

   1. DPDheeraj Pandey9:59

      fit is actually a journey, not a destination. You'll need to struggle with that at one million, at ten million, at fifty million, at a hundred million, at a quarter billion, at half a billion, a billion. Every such milestone, you have to keep thinking. Again, you have to think ahead of the curve. Because if you waited too long, you might start to sputter at a hundred million. You might have needed a new product for going from a hundred million to two fifty million, and you might need, have needed to see the new region of the world to do sales and marketing. I think this idea of PMF is relative, and it's not a destination. Every time you think you have product-market fit, you will start to sputter at the next threshold. So you're at ten million, you're like, "Okay, I have PMF." That means that you've not thought through that at fifty million you will stall because you don't have a pipeline that was large enough for more features, more capabilities, bigger deals, bigger customers, or you didn't think hard enough about the other regions of the world, which will now create a portfolio effect. Because what you keep need to doing is to create a portfolio of products, of customers, of regions of the world, geographies around the world that will give you that balance every quarter. Because not every existing customer will pay you every quarter. So you need to find a portfolio of large customers so that they can all balance each other every quarter. I think that to me is a journey more than a destination.

10. 11:18 – 12:08

    The One Thing Behind Every $100B Deal

    1. DPDheeraj Pandey11:20

       We take a step back and think about the funnel of idea and the life cycle of an idea. There's a lot of ideas up there at the top of the funnel, and then they become concepts. From concepts, when it becomes a little bit real, it's still a feature. You talk about all these companies that are basically building agents, but at best they're features, and you can get some early wins by showing a feature to your customer. But how do you take a feature to a product? A feature alone is not gonna get me $100,000 from a customer. How do you organize all this into a robust product and a product to a company and a company to a business? That is the real test of entrepreneurship. Going from a company to a business is now really building relationships with customers, making sure that you don't leave customers in the lurch when they need the most amount of help. One of the reasons for our success is underpromising

11. 12:08 – 12:30

    Underpromise and Overdeliver – The Core of Repeat Business

    1. DPDheeraj Pandey12:08

       and over-delivering, you know, and this is the core of repeat business. If your existing customers are not paying you more, then you're basically just selling and running, which means hunt, hunt, hunt. But the balance between hunting and farming, which is new customers versus getting more from existing customers, is at the core of building large businesses. You know, Jeff Bezos has called it, like, the Flywheel Effect of companies.

12. 12:30 – 12:56

    The Flywheel Effect of a Company

    1. DPDheeraj Pandey12:30

       You know, you need to add new logos, but you need to go make money from existing logos. I think that tests the real mettle of a company. Do you have a product that is authentic? Do you have customer support that's really good? And finally, do you have salespeople who really know how to underpromise and over-deliver? I'm a big fan of Will Guidara. He's a restaurateur who actually had two of the most famous restaurants in the world, and he talks about this concept of unreasonable hospitality,

13. 12:56 – 13:38

    Why Every Founder Should Practice Unreasonable Hospitality

    1. DPDheeraj Pandey12:56

       giving people way more than they expect. That is where great entrepreneurs differentiate from the mediocre ones. I think a lot of people think that entrepreneurship's about selling, selling, selling your dreams and ideas to prospective candidates who become employees of your company, but also prospective customers and partners. Very few people, I would say less than a percent of the people, are really good at following through. They'll sell and they'll move on, and they'll sell some more, and they'll move on, as opposed to selling and staying. I think that idea of unreasonable hospitality is what really creates the flywheel. When you go to a new customers, they hear from existing customers, and that's how you reduce the friction. At the end of the day, there's two

14. 13:38 – 14:30

    Fear of Missing Out vs Fear of Messing Up

    1. DPDheeraj Pandey13:38

       emotions going on in a new relationship, the fear of missing out, but also the fear of messing up, FOMO and FOMO as we call it. And a lot of people think that they just need to create FOMO with prospects, but they don't realize that most customers, especially in B2B, I'm talking about B2B software, when you're really doing larger deals like 50, 100, $200,000, a lot of it is actually based on FOMO, which is fear of messing up. So building that critical relationship and providing that unreasonable hospitality and letting your existing customers speak of that unreasonable hospitality is the only way to blunt that emotion of fear of messing up. To me, entrepreneurship is about building that authenticity at every level of the way because the market is actually smarter than you think.

15. 14:30 – 15:47

    The Future of Enterprise SaaS

    1. DPDheeraj Pandey14:30

       What is disruptive in technology? The biggest disruptive technology is miniaturization. Big things into small things. Lighter weight, sits in a pocket, no one on a desk. I mean, even the idea of infrastructure was like that. Oh, we're buying things for five years, big metal, monolithic purchases. Like, just come and use the compute for two hours if that's what it takes for you. When you make things smaller and lighter weight, that is the biggest disruptor to incumbents. SaaS has become extremely heavyweight, extremely complex in terms of implementation, so the disruption that will happen is consumption. We'll go from subscription to consumption, and consumption models is what will disrupt subscription models. Remember, subscription models disrupted licensing models of the last 20 years before that, where people are buying five years enterprise license agreements. We moved to subscription. We said, "Hey, you can pay by the user." Then Slack comes in, "You don't have to pay by the user. You can pay by the monthly active user," making it even more lightweight and a little bit more towards consumption. Snowflake coming in saying everything consumption-based. I think all SaaS will probably become consumption-based, and that will disrupt legacy SaaS.

16. 15:47 – 16:56

    The Worst Decision an Entrepreneur Can Make

    1. DPDheeraj Pandey15:47

       And the worst decision that people should not take is sit on things for too long. Sit on people who are not a good fit for too long, bad products, unhappy customers, unhappy employees, mediocre leaders. So to me, sitting on the suboptimal thing for too long is the worst thing that can happen. It's the tyranny of mediocrity, not changing and do nothing, which is exactly what you have to go and fight when you go and sell your new idea to customers. Because customers' most comfortable thing is to do nothing, and your biggest competition is not that other idea, the other competitor. Your biggest competitor is inertia, and that is also the biggest enemy within a company. Do nothing. That's the worst thing, uh, an entrepreneur can do. That's the worst thing a company can do. [outro music]

Episode duration: 17:06