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Second Time is a Charm: Interview with New Relic CEO Lew Cirne – Part 3
Part 3 of a 4-part InterviewBy Rob Kornblum | Interviews
By Rob Kornblum | Interviews
Part 3 of 4:
The following is Part 3 of a 4 part interview that I did with Lew Cirne, founder and CEO of software powerhouse New Relic, Inc. Lew is a successful serial entrepreneur and New Relic is his second big hit.
Rob Kornblum: That’s great stuff. And it’s completely reinforced the other CEOs and certainly the VCs I’ve spoken with.
Can we shift gears for a second?
I would like to understand a little bit the formative process of New Relic.
And in particular how you used your experience and your network to convince yourself that there really was an idea worth chasing and worth taking money for and building a business around.
Lew Cirne: Sure. Well, it’s interesting, because New Relic in many ways a do over of the first thing which was Wily.
So Wily, it started off me scratching my own itch and it took a couple of years before I got venture funding, discovering whether or not the problem I solved serviced a real market.
So why don’t I talk a bit about Wily briefly, and then New Relic will make more sense.
Rob Kornblum: Okay.
Lew Cirne: What both companies have in common is that they have product that can put visibility into what is otherwise a very black box.
Which is What is your software doing in production?
So for example, when healthcare.gov was just broken and not working last year, no one really knew why. There was no measurement that could really tell how long it was taking for people to load the page- the answer was something like 13 seconds.
But why?
How is that 13 seconds breaking down?
Is it the database, is it in bad code, is it the server having problems, is it because the website is relying on software running in another state that has a slow down?
So I created this technology that could answer questions like that by putting visibility into software. And it was a very missionary sale at Wily.
People thought they could just get by with monitoring the servers themselves, seeing whether their server were up or down, but that wasn’t telling them whether or not the end user was having a good experience.
So, over the course of this eight years of Wily we built it from a concept to a product to about a $55 million business, and then we sold it to CA for $375 million in ’06. And I don’t have any regrets at all about how that turned out.
But I felt like there was unfinished work.
I took a sabbatical in ’07, a year after the acquisition, and the first half of the sabbatical was just recharging, spending time with the family, golfing, poorly. And then I got itchy and started coding again.
But in the back of my mind was, what were the things that I could have done differently to make Wily a really great company that could have gone the distance, become public, could have been around for decades.
And I listed the things that I felt like were problematic about Wily.
One was the business model of living and dying by a small number of big deals every quarter, a license and maintenance business, you don’t have that predictable revenue stream.
One was a product that only made sense at a high price point because, in order to support the business model, we had to sell it in the field and those enterprise sales reps are very expensive.
Rob Kornblum: Sure.
Lew Cirne: And at Wily, it took me time away from [the business], in my sabbatical, to realize that was really my own fault as the creator of the product. The product wasn’t simple enough to be sold any other way.
So when I started New Relic, it was ‘How can I make a product so simple and easy to use that anybody who has software, a company of any size, would want to use it?’
‘Hey, I’ve got this thing, if you just drop it in it ought to tell you what’s going on in your software.’ And they would drop it in and sometimes it would break because it was early, but then it would work and they would be like “oh! I can’t live without this!”
And by then Peter Fenton, he said you should really take [the] $3 million. – Lew Cirne
And it’s hard to make something this sophisticated really simple and easy to use, but that’s the guts of what made NewRelic interesting.
So, I made this and I designed it for a simple business model where you buy it over the Web and it became a SaaS company.
Your question was, how did you discover your market?
Wily was really discovering and defining, or like creating a first market. New Relic was saying alright ‘Can I apply this to SMB, and can I use a SaaS model?’ But I already had a pretty good understanding of the market from my first experience.
Rob Kornblum: Right. Given that your customer base at Wily had been enterprise, what was that discovery process like?
Your customer network from Wily maybe wasn’t applicable, so how did you go about that process for New Relic?
Lew Cirne: Let’s see. So in starting, the whole thing started again with this technology stack called Ruby on Rails, which was used by a lot of startups, some of the companies that were built on Ruby on Rails, and this was ’07 timeframe, Twitter was originally done on it, Groupon, Hulu, so some big sites were built on Rails.
But lots and lots of SMB projects were done on Rails. It’s far faster to build a website.
Rob Kornblum: Did you start with the Rails community?
Lew Cirne: I started with the Rails community, exactly, and then I pinged my network to see if they knew people in the Rails community. And that got me going.
So I found like five or six Rails people and you know said ‘Hey, I’ve got this thing, if you just drop it in it ought to tell you what’s going on in your software.’ And they would drop it in and sometimes it would break because it was early, but then it would work and they would be like “oh! I can’t live without this!”
And by then Peter Fenton, he said you should really take $3 million and….
Rob Kornblum: Once you get “I can’t live without this” you know there’s something there. Right?
Lew Cirne: Right, right.
Rob Kornblum: And did you build that amazing ease of use, just kind of knowing that was what was going to be needed? Or was that part of working with customers?
Lew Cirne: That came out of the deep thinking after my experiences at Wily.
Rob Kornblum: The fact that implementation in the enterprise was too hard?
Lew Cirne: Yeah, well, and the other fact on it was, we tried at Wily to use other channels besides our own sales reps to distribute it. And we would have these very sophisticated, very technical resellers that certainly were as good as we could get at being able to resell it, but they never succeeded.
So that’s where I came to, look, unless this is a simple product that a customer falls in love on their own, you’re going to need hand-holding in the account to get the customer over the line. So let’s obsess over that.
And the other inspiration I had, that was the summer of ’07, that was first iPhone, and the thing that was cool about the first iPhone was that it was the first phone ever that a consumer could activate in their own home. You didn’t have to wait for somebody in the Sprint store to do some cryptic stuff to get the phone to work.
And I kind of drew a comparison to that and enterprise software. Like SAP, the equivalent of that in the store is like six months of consulting at $500/hour, that’s the equivalent of activating the phone. So, Apple really invested a ton of R&D in that first five minutes with the product.
And I think that was the ah-ha moment, that it may not be very long that the user uses that part of the software, the first five minutes of using the software, but it’s so critically important. If it isn’t awesome, then your business model is going to be far more problematic.
Rob Kornblum: Right. In those early days, as you started, did you take money before you started to build a team or did you do that simultaneously?
Lew Cirne: In New Relic, no. I had the benefit of Wily being a good outcome. Wily was the first investment ever for this investor Peter Fenton, and we became very close friends. He’s about my age and I was a first time entrepreneur and he was new to VC.
Peter and I maintained a close friendship and as he sort of saw me playing around with this idea, he just said ‘Lew, you’re backable now and I believe what this could become.’
I was asking him, ‘Peter do you think there’s an idea here? Do you think I should work for six months, build a team, put it back together, get a couple customers, and present for series A?’
And he said, ‘No, you should present on Monday and I’ll have a term sheet for you Wednesday [laughs].’
Rob Kornblum: That helps, when you’ve made somebody money.
Lew Cirne: Yeah.
Rob Kornblum: And you did that by yourself, and then turned to the Wily folks to say hey, I’m raising some money, so you can [join].
Obviously it’s a little different when you can offer someone a real salary, even a startup salary, but, as opposed to bootstrapping for a while.
Lew Cirne: Yeah, again, I had the benefit of my first exit so I don’t think I took a salary for some time. You know, it was certainly a lot easier doing a second one.
And this certainly doesn’t always fit the thesis of your, what you’re, but the focus of the first time entrepreneur in middle age. I was lucky that it was my second one.
But I’ll tell you, I don’t think I ever would have been ready to lead Wily. I wasn’t mature enough, I wasn’t self-aware enough to lead Wily, and I founded that one.