How VC Backed Software Firms Die A Slow Death
As the DevOps VC-funded valuation world collapses, three of its victims have been cobbled together to make something, well, who knows?
Is there a force strong enough to crush three losers into a winner? Can three left turns make a right? Can three ugly ducklings mate into a beautiful swan? Well, maybe not a swan, but something that can fly and make VC investors close to even. Maybe?
In software and SaaS there can be a massive difference between what software does and what its marketing people say it does. This is positioning and in the new world of Digital.ai, the new positioning is classic marketing-speak. (We have been informed some of the preposterous stuff in Digital.ai is actually from PAN Communications, but we are not sure yet so we will update if we find that to be true.)
There is a supporting concept to positioning: determine what a product does and CLAIM that is what the market desperately NEEDS. This Digital.ai combination of losers is a classic example of the VC, with desperate marketing department survivors, defining a market need AFTER investing in a product.
As you will see, that market “need” unsurprisingly parallels these three products – combined.
Here, let’s do an exercise.
Talk to 20 senior executives responsible or desirous of new, game changing apps. Ask them to list the top things they are looking for. Try it, it’s really fun!
Report back how many say anything like this:
“Thanks for asking. We were just discussing this.
We want a Value Stream Platform that seamlessly integrates all the disparate application tools and processes across the various value streams, uses data and AI/ML to create connective tissue between them, and provides the real-time, contextual insights required to drive and sustain successful digital transformation.”
Ask around. We did. Nobody says this or anything close to it. Nobody even heard of a value stream platform, whatever that seems to be.
We went to the web site for one of these ducklings and found a Gartner Report and a Forrester Report on this niche within a niche inside a sliver. The Gartner Report could not be accessed – it looks like these guys did not pay their bill or let it expire. But the Forrester Report was there – dated Q3, 2018, which is two years ago.
Here’s what Forrester wrote:
Start of Forrester Report
No Vendor Leads The Pack
Forrester’s research uncovered a market in which there are no Leaders; XebiaLabs, Plutora, CollabNet VersionOne, Tasktop, Targetprocess, and GitLab are Strong Performers; CloudBees, Intland Software, Jama Software, Blueprint Software Systems, and Panaya are Contenders; and Electric Cloud and CA Technologies are Challengers.
End of Forrester Report Quote
Let me interpret this for you in case you are not familiar with software company marketing:
1. There are over 10 players in this niche; none is a leader.
2. Two of them, XebiaLabs and CollabNet are two of the 3 Ugly Ducklings making up Digital.ai. Neither is a leader individually – who thinks they will lead collectively?
3. The marketing department has nothing better to post than an analyst report that says their product is no better than the rest. (Who would hire these marketing types?)
4. None of these firms has a differentiator in this vague space. That means any marketing costs will be extraordinary.
Maybe we are being a bit too hard on this value stream management thing. Let’s see if we can get a definition. We found a Forbes article that defines such a term. What a coincidence – it is authored by Flint Brenton, the CEO of CollabNet, one of the Ugly Ducklings:
“Value stream management is a lean business practice that helps determine the value of software development and delivery efforts and resources.
It also helps to improve the flow of value to the organization, while managing and monitoring the software delivery life cycle from end-to-end.
By identifying and examining value streams, instead of “features and functions,” and measuring software delivery success, teams can focus more energy and time on what works and shift away from what doesn’t work.
Simply put, value streams make complex processes visible and ready to pivot, if needed, to drive more value. Value stream management offers a unique view of the software delivery life cycle through the customer experience lens, to better align with business objectives and scale agile and DevOps transformations.”
Now, let’s do a marketing exercise we like to use to test messaging clarity and retention. Read Flint’s description, take your time, read it several times. Then have a coffee or a bottle of water. No alcohol, it ruins the experiment.
Sit with someone who has Flint’s written description, above, don’t cheat – do not look back.
Now tell them what a value stream whatever does while they look at Flint’s copy and see if you get any words right.
We are pretty technical people and we know a lot about DevOps stuff and we couldn’t do it.
Here’s why this is important: nobody is looking for value stream management. Well, perhaps someone is but not enough of them to generate a billion-dollar valuation needed to pay off venture investors. Those who buy this stuff are DevOps geeks who work in cubicles (those are the managers) and the actual buyers are 20-somethings who might try this stuff on a credit card to see what it actually does.
Don’t believe me? Try this:
Forrester and Gartner love taking money from over-funded VC invested tech companies. They do quadrants showing where each of them fits, thus guaranteeing ongoing revenue from marketing departments looking for a better position. This list of about a dozen companies, total revenue, from this sector, is nowhere near a valuation that supports a billion-dollar exit. Ouch!
Let’s look at the Ugly Duckling parts, then the sum, then the parts again. Let’s see if there is a swan on the way.
Do you, dear reader, think one morning the VCs woke up and said “Hark, what the world needs is a value stream management system that works across all the Dev/Ops stuff. Let’s create one! I cannot wait to get into the office and tell everyone about my discovery. This is the NEW Microsoft!”
Or, more likely, some VCs saw three struggling companies, with no ability to break out of the pack and some MBA-type (had to be an MBA, an Art History Major would not do this) some MBA type said let’s put these losers together, tell the market it needs one of these whatevers, and we can then sell it to someone who does not know better!
I think the latter better describes what happened. Your guess is as good as mine.
Clearly the XebiaLabs guys were going nowhere. They raised a ton of money, never seemed to make a dime, had mediocre leadership who dressed well, with great hair, drove nice cars but delivered, well, not much.
Nothing against them, none of the sector is successful and most are on a long, slow, quite predictable death spiral:
Chef, Puppet, several browser testing companies never had enough of a differentiator to be the market’s north star. Each was about the same as the one to its left and they sold their products to twenty-somethings, who worked at communal desks and bought transaction software with their credit cards. No scale there.
It appears the Digital.ai investors finally just gave up the ghost, decided to take several losing bets and combine them. Why not? Maybe something might happen?
After all, in VC-land, 3 x 0 could = a billion dollar company.
CollabNet looks like a loser as well. The Forrester Report, which their clearly incompetent marketing department actually posted on their web site says their stuff is not a market leader.
Then let’s add a security company.
Security is the only software sector more crowded with niche players, who are more features than products, than the DevOps space. So our trusty VCs add a security product with the claim that security is now part of the app dev pipeline, visibility, value stream, process, pivot……Sorry, I was trying to remember Flint’s value stream definition. Just lost it there.
Anyway, it’s in there and every Fortune 5000 company wants one. Read their press release, they say it; it must be true.
I am not feeling it. I am not feeling that combining three loser companies in niche sectors where individually they did not establish leadership is generating a swan. It’s just me, but….
There are many ways software companies die. Some are bought for scrap, like Perfecto Mobile recently. Others are merged into oblivion where their offerings become part of a larger entity, like the world of CA.
Still others just limp along with enough revenue to hire one more CEO, one more Sales VP, but everyone knows they are pretty much expended – like Chef, Puppet, XebiaLabs.
One thing that never happens is software companies coming back from the dead via a merger, combination. You never hear about a software company that was limping along, was merged with another limper, and together they won a race.
With Digital.ai, they just hired a CEO from CA.
CA is where software goes to die.
Maybe Digital.ai made the perfect hire?