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Every Startup Should Aspire to be the Next New Relic

By February 26, 2013Article

I don’t know, nor have I ever met, Lewis Cirne — founder of New Relic. However, I feel as though I have. If you haven’t read the news already, New Relic recently raised $80 million in financing. Their principal use of funds is now to prep for IPO and bring to market some deep R&D initiatives.  Very cool.
If you are not familiar with New Relic, they were first funded in 2008 on the bet that measuring application performance would become important to users architecting software for cloud computing. As a fan of their technology from the time they emerged on the scene, my opinion is that between 2008 and 2010 the bet was not yet a slam-dunk.
Take a look at their snapshot of active account growth:
2008: 200
2009: 1000
2010: 5500
2011: 13,000
2012: 35,000
2008 to 2010 exhibited solid growth, but it wasn’t as if the world was yet at the doorstep.
So what happened between the start of 2011 and the end of 2012? Did they re-invent themselves? Did they make a revolutionary discovery? Nope.
They were patient. And, prior to the announcement, that patience translated into $36 million in venture financing.
One of the most salient points of analysis from one of their VC partners stated that what they coveted most was their disruption to the traditional process to implement the kind of software New Relic makes. Basically, alternatives are more complicated, expensive and time consuming to implement. Interesting point.
The New Relic story is rife with lessons for every entrepreneur — from budding to full bloom.

  1. First, there is the lesson of how and when to properly leverage VC money.  New Relic’s founder knew just how big his play could become and he partnered smart from day one. VCs take a lot of rubbing in the tech industry, but their value is uncontested. Money is the lifeblood of a startup. New Relic counts some of the biggest funds on its roster of VCs. New Relic also timed VC money correctly. It took its first $3.5 million in April of 2008. Counting 200 unique accounts at the end of that year is not exactly earth shattering.  But by the start of Q2 they could clearly point to the fact that there was a potential gold mine sitting underneath them. This is a huge factor in their VC timing.
  2. Second, there is the lesson about disruptive innovation. As I’ve written in a related post, New Relic built a disruptive approach to an established industry by architecting a SaaS platform where packaged software was the industry norm. The impact of SaaS is undeniable and New Relic is now the latest example of how creating technology that lowers the barrier to entry for users and plays upon the weaknesses of incumbents is a winning strategy.
  3. Third, there is the lesson about innovation timing. New Relic started building in 2008 for a future they envisioned in a market. They didn’t start building for a market already saturated. In the famous words of Wayne Gretzky talking about great hockey players, “skate to where the puck is going, not to where it has been.” Great tech innovators build for where the market is going to be. In my opinion this happened for New Relic between the start of 2011 and the end of 2012. They reached the point where the market evolved to where its maturity matched New Relic’s vision and recognition of a market opportunity.
  4. Lastly, there is a lesson here in breeding patience. Before this week’s big announcement they raised $36 million from investors. Don’t kid yourself — this is a lot of money on the line. And, as a fellow tech company founder, I can guarantee that the ride to $80 million was no kiddie coaster.  As I’ve published about my perspective on characterizing the fiscal year in the life of a startup, there are a lot of ups and a lot of downs.  And with $36 million invested, there are a lot of watchful eyes in the market.

The patience exhibited by investors, the board and the employees of New Relic between 2008 and 2010 is something every entrepreneur should be mindful of cultivating. I would bet money this patience was not born; it was created. Being the steward of a vision is not an easy job. It requires a delicate balance between constant preaching and pragmatism. I’m sure Lewis Cirne could now write a book about it.
As New Relic embarks on the next big chapter in their great story, I tip my hat to Cirne and his team. Every tech startup should aspire to be the next New Relic.
John Cowan is co-founder and CEO of 6fusion and co-inventor of 6fusion’s WAC algorithm.  He is regarded as the company’s business model visionary.  In addition to 6fusion’s day-to-day management responsibilities, John is responsible for the overall strategic vision and commercial direction of 6fusion. A 12-year veteran of business and product development within IT and Telecommunications, he successfully created new business during the period of telecommunications deregulation and developed and launched new technology products and services globally. You can follow John on Twitter @cownet or @6fusion. 

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