Ajay's blog

This morning, Amazon’s purchase of Kiva Systems for $775 Million officially closed.

Mick Mountz, Kiva’s CEO and Founder, and his team did an amazing job of creating, building, and commercializing a revolutionary technology to transform how ecommerce distribution is done.  We, at Bain Capital Ventures, were fortunate to fund Kiva’s first institutional round in late 2004, when the company was turning its initial prototype into a commercial product.

We later led Kiva’s two subsequent rounds of financing, and while serving on its board the past 7+ years, I’ve learned many invaluable lessons about entrepreneurship and building a company.

1.   There is still a place for entrepreneurs to solve really hard problems with massive innovation 

There have been several blog posts, most notably by Peter Thiel and Founders Fund, discussing the venture community’s lack of desire to fund transformational companies –those with disruptive technologies taking on big problems.  Mick saw this firsthand. When Mick first started Kiva shortly after the bubble burst, he was unable to raise funding on Sand Hill Road.  This ultimately caused him to move to Boston, where he raised his angel round and eventually his round from Bain Capital Ventures.

Before Kiva, Mick spent years at Webvan, and he could never stop thinking about changing the way ecommerce distribution was done. It became his mission and what led to Kiva. Mick’s eventual solution was simple but not an easy task technologically.

Instead of making warehouse workers go to the inventory, Mick set out to make the inventory come to the worker. He believed placing inventory on mobile pods controlled by autonomous robotic vehicles would significantly improve labor productivity. And by placing those mobile inventory pods on a grid pattern that could be dynamically altered based on demand, Mick could ensure that any of the millions of SKU’s that a customer ordered could be “picked, packed and shipped” as any other SKU in the warehouse. But Kiva’s real magic is behind-the-scenes software that powers the entire system.

The truth is, Kiva simply wasn’t a company that could be cranked out in weeks with some seed money, and the technical obstacles inherent in building a solution like this forced Kiva to invest years working on the solution pre GA. However, once they built a working and viable solution, they had the advantage of significant IP and few direct competitors.  This allowed the company to be laser-focused on R&D versus having to fund a sales and marketing arms race in a more typical crowded VC-backed space.

Kiva’s success proves there is still a place for entrepreneurs like Mick to solve really hard problems with massive innovation.

2.    Backing a founder who can go the distance

Kiva is a great proof-point in the power of founder-led companies.  Mick is a brilliant founder who has that elusive combination of technical horsepower, domain expertise, charisma, incredible confidence in the clutch, and inspirational leadership.  What Mick didn’t have was prior CEO experience as this was his first company.  However, what Mick lacked in experience on the general management front, he more than made up for in his product strategy, the effect he had on customers with his insights about distribution automation, and his commitment to building a strong company culture.

Clearly Kiva wouldn’t have been nearly as successful without the executive team that worked alongside Mick. In particular, Mick’s President and COO, Amy Villeneuve, brought tremendous organizational leadership and operational capability to the company. She was instrumental in helping scale the business.

But having Mick lead the company from beginning to end, made sure innovation, customer success, and culture trumped everything else.

3.    The influence of Apple is far and wide

Many people who have read about Mick’s story know that his time at Webvan inspired the idea behind Kiva.  What is less known is that prior to Webvan, Mick was a product manager at Apple.  Mick’s Apple experience was formative and influenced his product decisions at Kiva.

As you can see from the picture, the Kiva robots are elegant and beautiful – these are not your “father’s” industrial robots!  The entire Kiva system, the orange robots, the blue shelves, and the user-friendly station software, works together and is tightly integrated.  Back in 2005, I recall our board discussion about why Mick insisted Kiva construct the shelves in-house since we didn’t feel the shelving was as proprietary as the software or robots.  Mick’s response was really interesting.  He asked me if I thought my experience as an iPod owner (this was pre iPhone) would be nearly as seamless and awesome if Apple hadn’t provided an integrated solution with the player, the cable, the headphones, the software, and the iTunes store.  In a world where enterprise products are typically sold piecemeal (think SAP plus Oracle database plus Accenture consulting plus IBM servers etc.), Mick sold an end-to-end solution.  The result was that the Kiva solution simply worked and the customers loved it. – and that’s what matters.

4.    ecommerce changes everything

While the revolutionary Kiva system was the foundation of the company, the fuel that accelerated growth was the ecommerce wave.  The growth of and transition to ecommerce was a forcing function to cause companies both big and small to rethink their entire distribution strategy and fulfillment operations.  While large centralized DCs worked for retail store restocking, in an ecommerce world, companies need smaller, more flexible DCs that were closer to their customer for faster delivery times.  This sea change is what drove Kiva’s steep revenue curve.

Ecommerce has also led companies to fundamentally rework how they think about demand generation, content creation, customer analytics, customer retention, merchandising, and order management.  Every major function of enterprise technology will have to be rethought, reformulated, and redone in light of ecommerce.  Kiva is a great example of a disruptive company in distribution.  Similar to Kiva, we will see other game-changing companies in these other functional areas.  These spaces are all up for grabs. Bain Capital Ventures has a number of portfolio companies in some of the spaces, and I expect we will see a long list of “winners” ride this wave.

Congratulations again to Mick and the entire Kiva team for building a truly great company and a disruptive technology.  We are thankful we were able to participate in this amazing journey.

Here is one of Kiva’s most iconic videos, the Kiva robots performing the Nutcracker…I never get tired of watching this, and I look forward to watching the Kiva team continue to pioneer bigger and better things as a part of the Amazon family!

“By 2017, a CMO will spend more on IT than the CIO” —Gartner Group

For the first time in history, businesses can leverage big data for the benefit of driving marketing insights. We are at the very beginning of this wave, but this fundamental shift will create several multi-billion dollar winners. And a set of technology companies will emerge as the marketing equivalents of Salesforce and SAP.

Based on this thesis, my partner Scott Friend (founder of Profitlogic) and I have been actively investing in this arena on behalf of our firm, Bain Capital Ventures. Bloomreach, cQuotient, Hooklogic and TellApart are among our recent early stage investments in this new category of marketing innovation.

At the heart of each of these companies are CTOs and engineers that have experience with big data and modern techniques for data mining, analytics, and machine learning. These companies typically charge on a performance basis as opposed to charging traditional enterprise software license fees. And these companies are a having significant impact on their customer’s revenues and profitability.

Why has it taken so long to get here? Enterprise software began in the back office

The world of enterprise application technology has gone through a number of iterations and evolutions over the past 30 years. In the late 70s and 80s, enterprise software consisted of mainframe and minicomputer solutions designed to handle various back office functions: finance, HR, and manufacturing. Over time, the winners in each of these functional applications areas: SAP (manufacturing), Oracle (financials), PeopleSoft (HR), began expanding into the adjacent categories spawning the ERP wave (enterprise resource planning). In the 90s, these companies became behemoths thanks to a concurrence of factors — the movement to client server infrastructure, the trendiness of corporate “reengineering,” the urgency around Y2K, and the growth of the large system integrators.

The focus on the front office

As of 1995, the majority of enterprise software dollars were focused on back office functions while the sales and marketing functions were largely ignored or served by smaller point solution vendors. This opportunity led to the creation of several companies, including Siebel and Trilogy (the company I was with for 8 years). Siebel became a very large and successful company and was ultimately purchased by Oracle for $5 billion (its market cap at one point was over $60 billion). More recently, Salesforce has leapfrogged Siebel with its SAAS approach. With a market capitalization of $17 billion, it has become the new industry heavyweight.

Despite the last 15 years of automation of sales functions, marketing functions have been underserved and underpenetrated in terms of enterprise software. While the other corporate functions have all created multibillion-dollar software companies, the marketing function has had only one exit north of one billion (Omniture). [See exhibit below]

Note: Oracle value represents an estimate of only the value of their financial software application business. SAP represents estimate of the value of only their manufacturing suite. Siebel, Peoplesoft, and Taleo values are based on the prices at which those businesses were sold to Oracle. SuccessFactors value is based on sale price to SAP. Baan’s value is their peak market cap. Omniture’s value is based on sale price to Adobe. Intuit, Netsuite, and Salesforce.com values are based on public market values as of 2/27/12. Disclosure:  Bain Capital Ventures was an early investor in Taleo.

Data versus Process

Historically, the challenge with marketing automation is that it has always been about “process” not about “data.” Back in the 90s, marketing apps were tools used to manage campaigns. More recent categories, such as email marketing or marketing automation, are focused on process automation — how to take a set of manual tasks and streamline them, track them or automate them.

However, marketing-focused software solutions have never been about strategic data. Unlike financial software, which serves as the system of record for the general ledger; or manufacturing resource planning software, which “owns” the bill of materials; or salesforce automation, which is the system of record for the pipeline and the funnel, there is no equivalent for marketing. Until recently, it has been difficult or impossible to collect structured data on marketing prospects who were not customers — folks who had not yet decided to buy and were still somewhere upstream in the purchase funnel. Absent this data, the best marketing technology could do was improve the process of decision making as opposed to delivering real insights.

The web changes everything

As more and more businesses across all sectors of the economy move to the web, this kind of data — and a massive amount of it — is finally available.

• A web business can mine thousands of signals from its prospects based on the hundreds of actions a consumer might take on a website (checking a price, looking at an image, reading a review, typing in a detailed search query, etc).
• The holy grail of closed loop marketing is finally here. With sophisticated technology and analytics, marketers can link customer acquisition spend directly to a set of downstream customer actions — whether those actions take place on the web, on a mobile device or in a physical location.
• Consumers with smart phones are conveying their intent while scanning QR codes, downloading mobile coupons, or simply walking into a store with their location-aware device.
• Social networks are providing a new source of demographic data that, combined with Facebook’s Open Graph, offer marketers a new treasure trove of information.

I am excited about this next wave in enterprise technology. Marketing will finally emerge from the backwater and will give rise to several multi-billion dollar companies.

Only The Best
Why Startups Should Recruit Aggressively from College and Why Most of Them Don’t

Prior to joining Bain Capital Ventures, I spent 8 years at Trilogy which was founded by Joe Liemandt, a Stanford dropout and brilliant entrepreneur. I first met Joe in 1988 when he and I and a few others worked on a startup (pre-Trilogy) during my sophomore year and his junior year at Stanford.

While Trilogy was a very successful company (it scaled to $300M in revenue), most people don’t know much about the company because Joe kept it private and decided to not sell or take it public. However, anyone who was a CS or Engineering Major in college in the mid to late 90s knows Trilogy because of its legendary college recruiting process, dubbed “only the best”. Whether it was the BMW giveaways on campus, the weekends in Vegas or at Joe’s cabin in Deer Valley, or the raucous “sell weekends” on 6th street in Austin, the Trilogy campus recruiting program was nothing short of memorable.

Joe was a big believer in only hiring “Kids”. At Trilogy’s peak, we hired more than 300 college kids into a company of less than 1000 people total. Because of the heavy focus on college hiring, the average age of the company was less than 25 years old and we had very few “adults” or experienced hires. The benefits of hiring from college are pretty obvious, but Trilogy took it to an extreme and at such scale it was a competitive advantage for the company.

Why College Kids Rock

No sense of impossible
Recruits straight out of college have no experience and as a result, they have no idea what is possible or impossible. They can look at any problem with a fresh perspective and bring unvarnished and unjaded creativity and sheer force of will to a challenge. I recall a time when our head of marketing and PR, Krista, who was a couple years out of Stanford, was asked by Joe to get Trilogy on the cover of Forbes Magazine. She didn’t respond with all the “rational” reasons why this was a silly goal, why it wasn’t do-able, or why the press is fickle. Instead, she made it happen. Four months after agreeing to the goal, she got Trilogy on the front cover of Forbes. It became the stuff of folklore and legend at Trilogy and reinforced Joe’s belief in The Kids.

Crazy work ethic
Trilogy’s college recruits had no life outside of Trilogy. They didn’t have commitments at home, they didn’t have mortgages, they didn’t have any obligations. As a result, the Trilogy recruits were regularly there at work past midnight – in fact, many of them enjoyed it – this was the life they loved and were used to in college (staying up all night working on some code) – now they were getting paid to do the same thing with smart people around them. Not all of these hours were necessarily highly productive, but the work ethic was ridiculous.

Out of the Box Thinkers
Some of Trilogy’s best ideas and innovations came from our college hires. They were smart and talented. They just graduated from college- a fantastic environment where people are encouraged to study across disciplines, where they are thrown in dorms with people from all walks of life, and they spend four plus years absorbing ideas, debating the meaning of life, and trying to improve the state of the world. They are taught to question authority and take nothing at face value. Contrast that with a typical corporate environment, even that of a medium to large tech company, where teams are more functionalized, roles are more specialized, and decisions are more hierarchical. The Trilogy Kids, while inexperienced, were not sullied by traditional corporate process or thinking. They still had the mindset one has in college when they arrived. This perspective and approach led to amazing innovation at Trilogy, including pcOrder, which spun off and became a $1B market cap company. Other new products like our marketing configurator or commission applications generated over $100 million of revenue. Entire new geographies, like our European division was launched and run by a Trilogy college hire.

Insanely strong culture
Every great startup that becomes an iconic company has a strong company culture. This company culture is what sustains a startup during difficult times and is what is celebrated during times of success. College recruits are a big contributor to company culture. These recruits come from campus environments where every Saturday they paint their faces and wear their school colors….environments where they cheer on ridiculous mascots like a dancing tree or a blue devil. College kids love the rituals and symbols that come with being part of a freshman class or dorm or college organization. These same rituals at Trilogy were celebrated with amazing intensity whether it was the friday party on the patio, the weekend vegas trips, or the toga party at the Hawaii retreat. Could you imagine how different a college football game would be if there were no college students in the stands and only the alums and boosters? This is what Trilogy would have been like without the college hires. Our culture would not have been nearly the same.

Why don’t more startups recruit from college at scale?
These are all obvious benefits of hiring from college. Big tech companies in the 90s like Microsoft were heavily focused on college recruiting. Similarly, the big tech companies of this era, Google and Facebook, aggressively recruit from college. Many startups may target a local college for a handful of hires or look to add 1-2 folks from the alma mater of the founder. However, very few startups recruit from college at scale the way Trilogy did it in the 90s. Why is that?

Cost, Time, Resources
On campus recruiting is expensive and time consuming. College fairs and college recruiting events are big ticket items. It can cost over $20,000 to participate in a formal job fair or similar event. In addition, the cost of flights and interviews on campus add up quickly. Now multiply this by 5 or 10 campuses and you quickly have a $500k investment to recruit from college, which makes a scaled campus recruiting program prohibitive. Plus, college recruiting requires an enormous investment of time – info sessions, on campus interviews, sell weekends, and new hire training typically involve a team of dedicated individuals plus significant time from the founders who already have too much on their plate.

However, most of our startup founders wish they could hire more engineers directly from college. And all of our founders, especially those in NYC and the Valley, feel that technical hiring is their number one challenge right now….

Introducing Startup Academy
It is in response to this challenge that we at Bain Capital Ventures are announcing the launch of the Startup Academy – a program run and staffed by our firm that is designed to identify some of the best technical graduates in the country and pair them with exciting startups in our portfolio. The goal of the Startup Academy is to provide startup opportunities for college grads and place them in a network with other recent grads who are working in startups. We think the work experience of being in a startup right after college, combined with being in a network with other recent grads who are also in startups, creates a fertile ground to develop the next generation of entrepreneurs. Not to mention, it provides enormous benefits to our portfolio companies. In this initial year, we are targeting a dozen campuses across the country and will be focusing on full time technical hires. Over time, we will look to expand the number of campuses and also include interns and non technical hires also. Here is the link with more information: http://www.baincapitalventures.com/startupacademy/

Thanks to Joe, Jeff, Alexa and the entire college recruiting team at Trilogy for being the inspiration for Startup Academy. And an extra special thanks to DR for being an advisor to our initiative.

Ajay
Trilogy University – 1995. “Only the best”