My first call this morning, as I sat reading emails in my favorite Sauce Labs hoodie, was from a large Sauce Labs strategic partner. His comment was “…Sauce Labs is imploding, everyone is leaving.”
A bit later in the day, one of their competitors called and said they were receiving all kinds of inbound leads from Sauce Labs’ customers. What is happening?
Actually, my comment to my strategic partner friend was that Sauce Labs was by no means imploding. Rather, it might well be expelling. There’s a difference.
It might well be getting rid of the toxic waste generated by a transaction mentality that caused a CEO to find forced peace in Sabbatical land, unexpected as it might have been.
Sauce Labs may be the best, certainly one of the best players in what is an admittedly crappy market – cross browser testing.
About everyone in that DevOps space is VC funded and thus has the almost universal traits that brings. They have an everlasting flow of money from lower and lower tier VCs. They never find profitability. They have CEO after CEO, followed by Sales VP after Sales VP. These are now called Chief Revenue Officers, and they are always called “global.” If Elon Musk makes it to Mars their titles become “intergalactic” VP of Sales.
This is the land of the companies who do not ever seem to make the wet exit. That is the liquidity event demanded by the VC and prayed for by the employees. Almost universally. These employees have stock options worth about 30% less in each funding round.
With 7-8 funding rounds for many of these firms, options 30% reduced 7 times is about an Uber fare across town. Still, most of the employees stay because there is just nowhere better for them to go.
DevOps was the promise horizon about 6 years ago. It would revolutionize the delivery of complex applications from years to months. It would make large, hidebound corporations agile, flexible.
Well, it didn’t. DevOps is neither a market nor a category. Rather it turned out to be an endless set of niches where the buyer, often under 30, bought such tools with his or her credit card. There was not much executive visibility and every software craftsperson had their own set of preferred tools.
On they came. Puppet, Chef, XebiaLabs, Perfecto and literally a hundred other such firms.
Just Google any subcategory and you will find 10 or more players.
When a category is this fragmented, there is almost zero chance for any player to achieve dominance. That said, there is no chance for a billion-dollar payoff for the VCs.
As Forbes noted, even with $100 million in revenue, that is no longer enough:
https://www.forbes.com/sites/valleyvoices/2017/10/23/when-100-million-is-not-enough/
One wonders why a VC would invest in any of these firms.
VCs have customers too.
They are called fund investors. Every few years the VC goes around and calls on fund investors like the Harvard Endowment and asks them to invest in the VC’s next fund. Promises are made, previous investments used to show success. At least this is what the top tier VCs do.
To have a top tier, there has to be a bottom tier. These types also make the rounds, albeit to a different class of investor. They have some story crafted by their marketing team about their theme for this next round. For a time, many of them pursued the DevOps category using the typically nonsensical Gartner forecasts and quadrants to deliver what an unsuspecting mind would consider “the truth.” They got their round done.
So now our VC needs to invest. They need to do it NOW. They need to report back at the quarterly meeting they have invested in X firms, each has brought in a new CEO, probably a new VP of Sales who is likely their pal from a previous gig.
The new CEO sits in the office, in the chair of the guy who just found out about his Sabbatical, and tells everyone how he chose this deal over all others. Some actually believe him or her.
The VC then forces the company to put as much of the new invested round into pushing sales and marketing as fast as possible.
At this point the company makes a life’s choice: transaction or big story.
Sauce Labs was the big story leader. Sauce Labs was the company who delivered cross browser testing at scale. If you had big needs to make that Christmas Holiday season, delivering 100 or more web apps on phones with your specials, Sauce Labs delivered.
Sauce Labs was the only company it seemed to many, who delivered the big picture that even an executive could understand. Deliver the perfect app, not the perfect test.
Then came the transaction mentality.
Driven probably by boards looking for that liquidity event, many DevOps companies went into transaction mode. Drive transactions!
To do so requires a typically mindless Sales VP who really lives in transaction-land. And these DevOps companies always found one.
Every day became a grind for that $23,500 transaction from each of a score of salespeople.
Salesforce.com meetings became endless torture events where every sales rep is beaten into submission about their “commit.”
The better talent departed as it had options. The less talented accumulated as it always does.
Transaction Sales VPs or Chief Revenue Officers demanded sometimes daily forecasting sessions. In one company, we witnessed forecasting events on a Friday afternoon followed by another on Monday morning. You cannot make this stuff up.
There are two rules for transaction DevOps software:
- If there are more than 3 players in your segment, you cannot achieve profitability with transactions, ever.
- You cannot create a “big strategic story” with transactions thus you are not going to get bought except for scrap.
Sauce Labs, some felt, lost its way in transaction-land. Profitability is elusive in such a place for any DevOps company. This requires new financing rounds making a wet exit more difficult.
Sauce Labs is by no means imploding. Hopefully it is simply expelling that toxicity of the transaction mentality that often costs a CEO his or her job.
Sauce Labs has the chance to get back to that big story that fits it so well.
We were in a meeting at a major telco in Dallas recently. A senior IT officer was complaining about recurring web site issues. We told him he might want to personally investigate their cross-browser testing. Our short discussion was that some firms, like Sauce Labs, delivered “perfect customer experiences” every time.
We warned him that their web site would talk about “testing at the speed of awesome!”
While we did not really know how fast that was, it was more of a brain-dead marketing slogan he should just ignore.
Rather, talk to his sales rep about the perfect customer experience, every time. That is what he cared about and what he will hopefully pursue. And if he calls Sauce Labs, that is what he is likely to get.
So no, Bill, Sauce Labs in not imploding.
They are cleaning out the transaction mindset that stood in their way and hopefully cleaning out marketing next.
They need to shed the brain dead at the speed of awesome and embrace the delivering the perfect customer experience.
It appears they are moving in that direction.