Zero to IPO by Frederic Kerrest
The following is an excerpt from Frederic Kerrest’s newest book Zero to IPO: Over $1 Trillion of Actionable Advice from the World’s Most Successful Entrepreneurs. Fred cofounded Okta, a publicly traded software company now valued at over $40 billion. In Zero to IPO, he has collected a trove of nitty-gritty tips for each stage of a company’s growth and assembled them into a clear blueprint for how to build a business. Organized by topic in roughly the order that leaders will encounter them as they scale their businesses, this book is the ultimate guide to taking a company all the way from founding to IPO-and beyond. The following is an except from his book that Jordan Thibodeau has asked Fred to share with us.
Architecture Is the Mother of Invention
And of a bazillion new companies
Marc Andreessen is convinced there aren’t any truly new ideas. If you think you’ve magically unearthed one, Marc will tell you you’re probably wrong. More likely, you haven’t done your homework and researched your idea’s lineage. But if that’s the case, you might ask: How come no one else has successfully translated this genius idea into a business?
Three Factors That Lead To Product Success
According to Marc, it’s because three things must come together before an idea’s time has come:
TECHNOLOGY: Is the tech available to make this idea happen?
ECONOMICS: Can it be produced and distributed at a price that customers will pay?
PSYCHOLOGY: Are people ready for it?
Without all three syncing up, your idea has little chance of success.
Fundamental architecture shifts create giant opportunities. Corporate computing once required large mainframe computers so big they had to be housed in their own rooms. As chips got smaller, so did computers. Desktop computing created a new market for business software. And as consumers started buying them for use at home, another new segment emerged: personal software. With even smaller chips came smartphones, and with them, the explosion of the app industry.
Startups have an advantage in these shifts. Existing companies might have more money, but they can’t rapidly retool themselves to tackle new opportunities, a concept Clayton Christensen famously introduced in his book The Innovator’s Dilemma (read it!). The shift from on-prem business software to cloud-based tools is what created a giant opportunity for Okta—as well as countless other startups, including Fred Luddy’s Service- Now and Workday, founded by Aneel Bhusri, one of Okta’s early board members. It’s a great example of how architectural shifts open up a flood of new opportunities for entrepreneurs.
The Way It Was
For decades, businesses had to run business software on their own servers. The cloud didn’t exist. The internet was new. Businesses had to buy and install software on their own servers, the way consumers used to buy software on CD-ROMs and install it on their own computers. This is the Technology part of Marc’s triad. Cloud-based business software wasn’t possible until the internet and connectivity speeds grew large enough to support it.
Even as the internet developed in the 1990s and 2000s, the technology wasn’t powerful enough for people to use it for anything other than email and chat rooms. But then, even when speeds increased, users didn’t trust web-based tools. (There was a time when people were even skeptical about buying things online.) This is the Psychology part of Marc’s triad. Even after the Technology had arrived, humans weren’t ready for it. It’s crazy to think about this now, but back in 2009, when Todd and I were pitching our idea for Okta, a lot of people we talked to simply didn’t believe businesses would migrate their operations to web-based tools.
The idea of creating the kind of business software that exists today seemed ludicrous. People thought it would be harder to use than the tools they were used to, and they were afraid of transferring their business data to a website’s databases.
The Way It Became
Still, visionaries like Fred, Aneel, and my old boss, Marc Benioff, who cofounded Salesforce in 1999, looked into the future and could see that business software would, in fact, eventually move online. The naysayers were focused on things they thought would be problems. But Fred, Aneel, and Marc could see all the advantages online software would bring.
For example, it was really hard to update on-prem software. Whether you wanted to fix bugs or add new features, you had to get copies of the software from the vendor and then install it, manually, on your own devices. It was a nightmare for everyone. Once everything was online, Fred, Aneel, and Marc knew, all changes would be made behind the scenes by the vendors—the way services like Gmail, Dropbox, and Airtable do today. The customers wouldn’t have to do anything. Life would be so much easier!
Benioff was one of the first to dive into this new world, and we and others followed in the 2000s. The tipping point didn’t really come until the early to mid-2010s, however. Before then, executives weren’t psychologically ready to make the leap. No CIO was going to get fired for sticking with on-prem tools, but they definitely would lose their jobs if they jumped to the cloud, and something went terribly wrong.
What It is Now
Today, cloud computing is ubiquitous. The companies where you’ve worked or the universities where you’ve studied probably all use cloud-based tools such as Microsoft Office 365, Salesforce, Amazon Web Services, Google Workspace (formerly called G Suite), Slack, Zoom, Box, and even Okta.
There’s been a resulting explosion in business software. Previously, the expense involved in building on-prem tools limited the number of companies able to get into the game. Cloud-based tools, on the other hand, are so much easier and cheaper to build. Before the cloud, you couldn’t whip something up on your couch—or in your parents’ attic, as Aaron Levie and one of his Box cofounders did—and toss it on the internet. In the on-prem world, you needed at least $10 million to pay for all the equipment and people you would need—just to get started. Today, you can start working on a cloudbased idea with $100,000 from angel investors (and sometimes even less). This is the Economics part of Marc’s triad. It had to become cheaper to build and to buy cloud-based tools for this industry to take off.
There’s been a commensurate rise in demand. On-prem software was hugely expensive. Companies couldn’t buy a lot. Now that many cloud tools are so cheap, companies can use a lot more of them.
The founders who recognized that these shifts were taking place—and who had the courage to dive in—have done amazingly well. Sure, there were some very lean, nail-biting years early on. But companies like Salesforce, Workday, ServiceNow, and Okta have become hugely valuable. Getting in early solidified our lead, and now many of those companies are the leaders in what they do.
If you like this excerpt, we highly recommend that you purchase Fred’s excellent book, Zero to IPO: Over $1 Trillion of Actionable Advice from the World’s Most Successful Entrepreneurs.
Check out the other parts of this series in our blog: