Bessemer's Top 10 Laws for Cloud Computing
Running an on-demand company means abandoning many of the long-held tenets of software best practices and adhering to these new principles.
By Byron Deeter, Bessemer Venture Partners
Nov. 10, 2009
At Bessemer Venture Partners we fundamentally believe that the emergence of Cloud Computing - and the three core components of Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS) - is going to completely change the economics of the multi-billion dollar software industry. We have been fortunate to be investors in many of the early Cloud winners (such as Postini, Netli, Trigo, and Cyota), and continue to invest actively behind one of the largest Cloud portfolios in the venture capital industry. Periods of tremendous transformation create tremendous opportunity, and we consider ourselves privileged to be working with many of the great entrepreneurs who are currently creating the next giants of the "software" industry.
When we first published Bessemer's Top 10 Laws for Being "SaaS-y " on Sandhill.com almost two years ago in conjunction with our annual Cloud/SaaS CEO Summit, we were overwhelmed with the positive response and feedback we received. We have heavily modified many of the best elements that we believe are still relevant, and have added several entirely new concepts for this update publication on Cloud Computing and SaaS.
The Cloud computing stack is currently defined by three levels: SaaS, PaaS, and IaaS. Software as a Service (SaaS), the most mature of these segments, is comprised of end user applications like Salesforce.com. Platform as a Service (PaaS) is the service and management layer of the cloud platform, and is evolving dynamically to include things such as intelligent provisioning, as well as application and network management. Infrastructure-as-a-Service (IaaS) is the foundational layer of cloud computing, and includes raw storage, compute, backup, disaster recovery, databases, and security.
As the first segment to emerge in scale and the most application oriented, SaaS has lead the market to date with the largest market size, highest gross margins, and highest per-seat pricing. Recently, however, we've seen the rapid emergence of hyper-growth businesses in the PaaS and IaaS markets demonstrating that these will soon be independent, multi-billion dollar segments in their own rights with the potential for massive sales volume and attractive cash flow characteristics.
Bessemer's Top 10 Laws of Cloud Computing
Here are Bessemer's top 10 laws which will drive software success in the cloud:
BESSEMER CLOUD COMPUTING LAW #1: Less is more! Leverage the cloud everywhere you practically can, both for your internal systems as well as for your own product offering(s) and "just say no" to on-premises deployments! This will not only give you a direct understanding of the customer experience and best-of-breed strategies of Cloud Businesses, but it will free up your technical resources and balance sheet to focus on your core product and customers. (Read more on Bessemer's Cloud Law #1.)
BESSEMER CLOUD COMPUTING LAW #2: Get instrument rated, and trust the 6C's of Cloud Finance. Any good pilot (CEO) knows that you can't fly in cloudy weather without an instrument rating, yet many CEOs are attempting to do exactly that. Build and trust your CEO dashboard. Your key business metrics must include: 1) Committed Monthly Recurring Revenue (CMRR), 2) Cash Flow 3) CMRR Pipeline (CPipe) 4) Churn, 5) Customer Acquisition Cost (CAC), and 6) Customer Life Time Value (CLTV). (Read more on Bessemer's Cloud Law #2.)
BESSEMER CLOUD COMPUTING LAW #3: Study the sales learning curve and only invest behind success. Years ago, Bessemer was fortunate to invest behind Mark Leslie at Veritas, and as a result our firm became big believers in the Sales Learning Curve (SLC), a concept Mark helped pioneer. The core concept is that software organizations often fail because they staff up their sales efforts too quickly, before the sales model has been refined. This concept is even more critical for Cloud businesses, given the large upfront investment required to acquire customers. Ramping up too quickly will burn precious cash reserve and could sink the business. This typically means you should hire sales reps slowly upfront, only focus on your core geography until your business starts to scale considerably, and separate your "hunters" and "farmers" as you start to ramp. (Read more on Bessemer's Cloud Law #3.)
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When we first published Bessemer's Top 10 Laws for Being "SaaS-y " on Sandhill.com almost two years ago in conjunction with our annual Cloud/SaaS CEO Summit, we were overwhelmed with the positive response and feedback we received. We have heavily modified many of the best elements that we believe are still relevant, and have added several entirely new concepts for this update publication on Cloud Computing and SaaS.
The Cloud computing stack is currently defined by three levels: SaaS, PaaS, and IaaS. Software as a Service (SaaS), the most mature of these segments, is comprised of end user applications like Salesforce.com. Platform as a Service (PaaS) is the service and management layer of the cloud platform, and is evolving dynamically to include things such as intelligent provisioning, as well as application and network management. Infrastructure-as-a-Service (IaaS) is the foundational layer of cloud computing, and includes raw storage, compute, backup, disaster recovery, databases, and security.
As the first segment to emerge in scale and the most application oriented, SaaS has lead the market to date with the largest market size, highest gross margins, and highest per-seat pricing. Recently, however, we've seen the rapid emergence of hyper-growth businesses in the PaaS and IaaS markets demonstrating that these will soon be independent, multi-billion dollar segments in their own rights with the potential for massive sales volume and attractive cash flow characteristics.
Bessemer's Top 10 Laws of Cloud Computing
Here are Bessemer's top 10 laws which will drive software success in the cloud:
BESSEMER CLOUD COMPUTING LAW #1: Less is more! Leverage the cloud everywhere you practically can, both for your internal systems as well as for your own product offering(s) and "just say no" to on-premises deployments! This will not only give you a direct understanding of the customer experience and best-of-breed strategies of Cloud Businesses, but it will free up your technical resources and balance sheet to focus on your core product and customers. (Read more on Bessemer's Cloud Law #1.)
BESSEMER CLOUD COMPUTING LAW #2: Get instrument rated, and trust the 6C's of Cloud Finance. Any good pilot (CEO) knows that you can't fly in cloudy weather without an instrument rating, yet many CEOs are attempting to do exactly that. Build and trust your CEO dashboard. Your key business metrics must include: 1) Committed Monthly Recurring Revenue (CMRR), 2) Cash Flow 3) CMRR Pipeline (CPipe) 4) Churn, 5) Customer Acquisition Cost (CAC), and 6) Customer Life Time Value (CLTV). (Read more on Bessemer's Cloud Law #2.)
BESSEMER CLOUD COMPUTING LAW #3: Study the sales learning curve and only invest behind success. Years ago, Bessemer was fortunate to invest behind Mark Leslie at Veritas, and as a result our firm became big believers in the Sales Learning Curve (SLC), a concept Mark helped pioneer. The core concept is that software organizations often fail because they staff up their sales efforts too quickly, before the sales model has been refined. This concept is even more critical for Cloud businesses, given the large upfront investment required to acquire customers. Ramping up too quickly will burn precious cash reserve and could sink the business. This typically means you should hire sales reps slowly upfront, only focus on your core geography until your business starts to scale considerably, and separate your "hunters" and "farmers" as you start to ramp. (Read more on Bessemer's Cloud Law #3.)
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