If You Work For These SaaS Firms, You Are Dead Meat: Chef, Puppet, XebiaLabs
DevOps is dead. That is quite apparent at Chef, Puppet, Xebialabs and most of the DevOps startups who are 10 years old and still unprofitable.
It is not dead in that people are not using it, it is dead in that there is not going to be a leader that corrals many of the DevOps companies into a cohesive whole and creates a high value, leading contender.
And if you work for a DevOps software company, you aren’t making much on those options because they are likely worthless. Or close to it.
And those options can be up to 50% of your pay package over 5 years!
If you work for Chef, XebiaLabs, Puppet, the browser testing guys (except Browserstack maybe) or the scores of other DevOps companies, you are going to make squat on your options and you are likely wasting your time there.
If you are an investor and you have nowhere else to invest, you should seriously consider index funds. Even Bitcoins will do better.
We are used to software categories. In every category, leaders emerge. Oracle beat out a half dozen other DBMS firms and now everyone uses Oracle. Or everyone but IBM.
SAP and Oracle financials rule the world because the hapless Baan people hired European bureaucrats, not street fighters, and SAP won with a far inferior product. Too bad for so many firms who have had both agility and flexibility eroded by that monster.
But in DevOps, we are dealing with a market leader that never emerged. There are so many DevOps companies, so many sub-categories, nobody can really follow all of them. Thus, it is inconceivable that a DevOps leader will emerge to manage a lot of the process of delivering agile app code.
Evidence for Chef, Puppet, Xebialabs
What is my evidence?
Well, dear reader, I bring to the table two quite interesting points of view from those on the front lines. The first comes from the recent Forbes article quoting Shasta Ventures.
The article clearly shows that firms who have raised over a $100 million, are 10 years old, do not make a profit, have about zero chance of ever getting a positive equity exit event. What does that mean?
For you, dear employee, it means your stock options are worth nothing, or close to nothing. It means that at your company meetings, you are likely hearing a lot about “our valuable culture” from the VP of People and Culture. They are going to do all they can to show you the shiny objects of logo-wear, lunches, outings, maybe a sabbatical, cool offices — anything to keep you off the denominator.
What is the denominator you say?
Well, let’s look at XebiaLabs or Puppet/Chef. Look at the cross browser testing companies like Perfecto.
Each has surpassed or is approaching a $100 million in VC investment. To date, it is not obvious that any has made a dime. They are 10 years old (go read the Forbes article and you will understand why this is important).
As Shasta notes, there is no way these companies are going to get an equity event that is 4x or 5x invested capital thus contributing to the stock option value. This means, in plain English, if you are an employee there, you are likely eating well, getting warm, comfy logo-wear, cool metal water bottles, but your options?
And those options are 30% or more of your 5 year pay package!
Enjoy the hoodies. You paid for them a thousand times over because you are working for half wages since your options are worth about zero.
When you see a venture firm or group of them investing $100 million, you want to learn what the word “preferences” means. What it means is that the VCs know it is a crap market, there are not better places to invest, and while they know they will never see 10X their investment, who cares? They get to take out all their dough at point of sale and divide the rest up, you getting screwed.
So, back to the Shasta Forbes article. If your company is 10 years old, has $100 million invested in it, it will likely be sold for scrap. It cannot get a profitable (for option holders) exit.
And remember boys and girls, the stock options are about 30% of your 5 year pay package. You just gave up 30% of your 5 year wealth. Still like those hoodies you got from HR? How are those free lunches tasting now? A bit expensive, huh?
Actually you paid over $10,000 for that veggie sandwich because you ate it while your management was screwing you on your stock options. Does kind of make it hard to swallow, right?
Now to evidence point number 2.
There is a DevOps market called cross browser and mobile testing. It is sort of a sub category in DevOps. The leader in the space is likely a company called Perfecto Mobile. They solve a very gnarly problem.
Companies need to deliver mobile apps to buyers. Those apps need to be on phones and tablets. The app needs to look the same and work the same on each of these. Perfecto makes sure the app performs the same way, no matter the delivery vehicle.
It gets more complicated. Say you are using a mobile phone and you are in Romania or other equally desolate place where they have werewolves or vampires or aging Communists who kill people. Like who would go there, but that is another matter.
The great people at Perfecto Mobile can make sure that the app on that phone, when in Romania or other such end-of-the-world place, works even in the Romania cell network just like it does in the neighboring Hungary or whatever is a nearby network.
This is not easy stuff. It is not for the faint of heart. It is hard technology, not necessarily very deep tech, but very hard to pull off. Lot of trial and error. Lot of serious infrastructure to deal with.
Perfecto is the king, or queen if you will, of this this market. Everyone needs this kind of tech if they are selling on mobile devices world-wide.
Perfecto Mobile is a leading vendor for DevOps, mobile, cross browser testing. They are credible, they have billions of customers (if you listen to their ridiculous CEO who said they were going public in 2014 and everything was triple digit growth).
But, they never made a profit and they struggled to raise another round.
They are reported to have $60 to $80 maybe $100 million in revenue.
So here we are. Hot company. Great revenue. Everyone buys their stuff. On their way to an IPO. More customers than there are people in China.
Then, well, let’s go back to evidence point number 1. The Forbes article from Shasta Ventures predicted that firms like Perfecto Mobile would never be able to make the equity exit because they are 10 years old, have $100 million in invested capital. And as evidence point 1 points out, they will get bought for scrap. Forbes says $100 million is just too much invested capital. Ouch!
And scrap they have become.
Perfecto Mobile got bought for $200 million from Perforce, a company nobody ever heard of but who put out the press release about synergy and the other crap people say when they buy dreams for nothing.
The VCs made out just fine. This is not the deal they brag about, but using preferences they likely got their dough out whole to invest somewhere else. Not a big hit but not a loss. There was, however, probably a loss for the employee option holders.
Those employees who made the 4-7 year commitment to firms like these, believing the CEO, the VP of Culture and People that the employees are the heart and soul of the company, that the company loves them so much — well I can bet the CEO and VP of People made out just fine on “set asides.” That means you, dear employee, were used in quite a rough way.
How do you protect yourself?
If you have a house, home insurance. If you have a family, life insurance. Do you have a car? Auto insurance.
Are you a software engineer?
Well, ask one, only one, question.
“Carolyn (VP of People who loves you and loves the culture at this company), Carolyn, what is the fully diluted value of the stock options you are offering me, which is about 30% – 50% of my 5 year pay package?”
Then watch Carolyn, or Tiffany, or whoever is your VP of People choke.
“Well, Bill, we do not give out that information. We are a private company and that is highly confidential.”
When you hear that you have two choices. Only two.
You can either take the gig because you are desperate and you can bend over and grab your ankles with the HR and marketing types. If you are a HR type with nowhere else to go, you grab those ankles, gladly. So do the marketing types because they know they will never get rich sending out SPAM, which is what they do. Quite well, actually.
Or if you are any good, a top sales or engineer talent and have employment options, you should say: “Thanks Carolyn, you are a total scumbag and I will never work for a company who would not tell me the what up to 50% of my pay package is really worth.”