MetricStream went through three pivotal phases - inception as a platform company, transition to Quality Management and repositioning as a GRC (Governance Risk and Compliance) software company.
Inception - The Platform Company
Back in September 1999, Arvindh Balakrishnan, Albert Thomas and I were stuck in a hotel in Orlando during Hurricane Floyd. We had just implemented a worldwide system for Lucent (Microelectronics Division) to provide visibility into their inventory and production of semiconductor products. It was a large implementation that had costed over $100 Million and included state of the art real-time integration between multiple systems. As the system was rolled out globally, we found business users had limited access and control over business data - they had to rely on the IT department for everything. This lead to the realization that there was a need to democratize access to information within an Enterprise and provide business users the ability to act on that information. We started drawing up the specs for a software platform to address this need. Since most of our background was in building software for enabling business operations such as quoting, ordering, manufacturing, shipping/logistics, billing, costing and inventory management, we started designing a platform with that particular audience in mind.
Over the next 3 months, Arvindh and I worked on the initial prototype. We were able to sign three beta customers (including Lucent). I was working full time on the prototype while Arvindh worked on investor presentations. Thus, MetricStream was founded as SystemI (system-eye) with a goal to provide a technology platform for aggregating data from various business applications, delivering metrics and alerts and providing the ability to business users to act on it by making updates to data in various business applications.
From inception to raising our first round of funding in Jan 2000, we met with several investors. Ashish Gupta (Junglee, Amazon and Helion Ventures), Gunjan Sinha (eGain) and Dale Fuller were among our initial investors. The funding was made possible primarily due to the introductions made by Bhaskar Vasudevan, Neeta (my wife) and Arvindh Balakrishnan (co-founder). Bhaskar mentioned that his CEO (Dale Fuller was at Borland at that time) had indicated that he was interested in investing in startups. Our meeting with Dale lead to introductions to Gunjan and additional investors. With an angel round of $1.6M and a handful of marquee beta customers, we set out to build the platform. We hired our first employee, Dmitriy Rogatkin, an experienced Java engineer. With a small team of about 6 engineers in a small office in Sunnyvale, we started development. By Dec 1999, we had a working version of the platform. Arvindh worked on partnerships and was able to establish an OEM relationship with WorldChain. The team was highly motivated and worked long hours and weekends.
The market crash in April 2000 did not deter us. We continued at the same pace seeking customers, burning cash and looking for our next round of financing. Arvindh was able to sign Verizon as a customer in early 2000. That lead to an introduction to Quest Software, which made an investment of approximately $4M at three times the previous round’s valuation. Based on input from a VC, we renamed SystemI (system-eye) to MetricStream. It was perfect as it represented the key focus at that time - supply chain and operation metrics management. In our first 6 months of operations, we had $600K in bookings and a product deployed at Lucent.
With Verizon and a few new customers on board, we continued to plough through and added more features to the existing platform (Dashboards, ETL capabilities, Process Flows, Reporting and Forms). We were not signing up as many customers as we had anticipated, primarily because the market had disappeared. No one was spending as valuations were getting decimated by the stock market collapse. The board consisting of Arvindh, me, Marshall Senk of Quest Software and Gunjan (observer) was not overly concerned at this point. We would later realize that this was a huge mistake for not taking any steps to slow down spending. As we went further into 2000, we were unable to sign additional customers. It was the frozen tundra with almost $0 in IT spending on new software. Companies were in cost cutting mode, not increasing revenue. This is where we made our first mistake - burning cash when we didn’t have a clear line of sight to revenue or fund raising.
Transition to Quality Management Solutions
As we went into 2001, we struggled to find leads, let alone close any deals. For a small company with limited resources, we began to realize we had to focus on applications . Selling the platform was too hard with long sales and implementation cycle times. We had to pivot. We realized we needed to pivot from a platform company to an application company. We had interest from Teradyne to partner on developing a Quality Management solution for one of their largest customers. Teradyne’s MES system, SFDM, was also used at Lucent, so we were familiar with their product. We starting working with Teradyne on a POC for Solectron, a $20 Billion contract manufacturer at that time. We built a CAPA (corrective and preventive actions) module (part of Quality*Stream) on our existing platform (branded MetricStream EPM) and engaged in a POC. This was very different from anything available in the market with integrated alerts, dashboard, reports all delivered via a web application. The incumbent products at that time were either client server based or web applications with very limited capability. Given that our platform sales was not getting significant traction, we decided to completely pivot to Quality Management. The Solectron POC generated $50,000 in revenue with the potential for a $2 Million global rollout. This was going to be our key moment. A few days before signing the Solectron global agreement, disaster struck in the form of 9/11. It was a devastating blow. Solectron placed a freeze on the project as their revenue projections dropped to $12 Billion (a drop of 40%). With no revenue in sight, and cash left to last through June, 2002, it was time to do something drastic and reduce our burn.
Towards the end of 2001, we started working on establishing a development center in Bangalore. Bhaskar Vasudevan, one of the brightest people I’ve ever worked, joined us as our head of India operations. There was nothing he could not do. He could code, debug complex problems and at the same time find the most affordable office space in Bangalore on Richmond Road. After getting his MS in CS from RPI, Bhaskar worked in Oracle’s server technologies group. We started with a small team and recruited college grads both from the US and India for the team operating out of Bangalore. Peter Chow and Albert Thomas had joined us from Oracle. They were leading the efforts with our customers (Lucent, Verizon, WorldChain, IDEC, ITT-Canon). Throughout this period, the entire team took a huge paycut, in some cases as much as 70%. The team was working 7 days a week, developing new features, adding new modules for Document Management, Audits, Inspections and adding platform features. As a team, we worked harder than at any other time at MetricStream. The passion and motivation was perceivable right from our CEO, Arvindh Balakrishnan to our engineers in Santa Clara and Bangalore. In spite of the financial challenges, the pace at which we were adding features to the platform, working with our customers along with our close knit team, was unparalleled. This was one of my best professional experiences at MetricStream. Teams are motivated by passion, trust and belief that they will make an impact, not by monetary incentives. In my view 80% of the intellectual property was created from the first $5 Million in funding and 20% from the next $50 Million.
Arvindh was spending most of his time on fund raising activities. It was frustrating for both of us since VCs were not investing. Quest was not making any further investments, new VCs were not sure what they could do with a limited market opportunity in Quality Management. We soon learnt a lesson - don’t waste time looking for funding, unless it is in one of the hot areas. We went back to our investors and Gunjan was grateful in extending a bridge to the company. With a bridge loan, we went back to seeking customers. In one of the most aggressive outbound sales campaigns lead by Arvindh, we closed 5 customer deals within a span of 3 months. Customers included Boston Market, Albany Molecular, Taylor Made, Wolverine Worldwide. In parallel, we started consulting to increase revenues. Our background in Oracle Applications, and with help from Arvindh and Sonny Singh, we were able to consult at Agilent Technologies (spin-off from HP). For 6 months, Peter Chow and I worked at Agilent. It was an interesting time. I worked from 5pm to 4am with Agilent’s team in Singapore and Malaysia from their Palo Alto office and went into the MetricStream office in Santa Clara between 11am - 4pm to work on product design and participate in meetings.
As we headed into 2003, the financial stress from the last 3 years was beginning to impact folks. Arvindh moved to Raleigh with his family and started to work remotely. He had also been thinking of moving out of his CEO role and doing something else. With the product maturing and a decent pipeline of leads, Arvindh decided to move out of his CEO role and go back to Oracle. After he went back to Oracle he had a variety of field leadership roles and now runs the Customer Experience Business Group. Arvindh’s twitter handle is @CX_ORCL. A year later Bhaskar left MetricStream. He co-founded Qwikcilver (India’s leading gift card company), where I’m a minority investor.
In parallel, we started looking for funding and working on new customers. Subway was a huge customer win based on our product footprint at Boston Market. We introduced Audits and Complaints Management modules. Now we had a platform, an initial set of customers, but we still lacked sufficient revenue to be profitable. The market had improved and we were getting term sheets from VCs. There were opportunities for Quality Management in Pharma, Hi-Tech, Manufacturing and Food Services industries. However, it was still a limited addressable market.
Kleiner & Repositioning to GRC
One of the biggest issues MetricStream faced in 2004 was the barrier to entry into life sciences. Due to our balance sheet, we were having a difficult time closing pharma deals. This was about to change. We were able to connect with Vinod Khosla and work out a deal to fund MetricStream by merging with Zaplet. This would give MetricStream the backing of Kleiner Perkins and provide much needed cash (almost $12 Million) as a part of the overall deal. We had several term sheets, but we decided to go with the KP deal. This reminded me of a conversation with Anthony Lee at Altos Ventures. During one of our meetings he asked who my ideal VC would be and I promptly responded Kleiner. I was thrilled that this was about to come true. Anthony Lee and Altos Ventures were probably the most impressive of the VCs we worked with, but unfortunately we were unable to bring them in to fund MetricStream. VCs are not all bad, there are a few really good people in the VC business. Ashish Gupta at Helion Ventures is great example of one such VC. I say this after having realized over the years that there is a time and place to raise money from VCs. With the right VCs, you can build a successful company.
After the merger with Zaplet, Shellye Archambeau took on the CEO role and Gunjan the Chairman role. As CTO, I had responsibility over products, services, platform engineering and customer support. Shellye Archambeau brought balance and structure to the company and is one of the reasons why the company had some sense of sanity.
Kleiner and Vinod Khosla brought tremendous value - it was unbelievable! I’ve had the opportunity to meet Vinod during board meetings and see him in action. Although, I was told he had mellowed down, his energy and passion was incredible. We did not have to worry about fund raising any longer. We had access to funding unlike before, no more due diligence meetings or spending time on Sand Hill Road. Our problem was now execution, not capital. However, excess capital is a double edged sword - it lets you execute at a scale that is hard otherwise, but it also makes the team less hungry. This was an issue once MetricStream was funded by Kleiner.
The focus shifted to customer acquisition and pivoting to GRC. With Sarbanes-Oxley emerging as a significant compliance requirement, Kleiner believed compliance would be a big space going forward. We had the platform capabilities to build a compliance application. We started building a new set of applications to address compliance issues and rebranded the platform to MetricStream ECP (Enterprise Complaince Mangement Platform). The existing footprint of apps including Audits combined with the existing platform capabilities provided the foundation to expand to other GRC functional areas as well as new verticals. In 2005 and 2006, we were able to expand the customer footprint tremendously. Although Zaplet was part of the acquisition, unfortunately none of the technology ever made it to the MetricStream platform (besides in marketing collateral). As MetricStream started to grow and the number of customers increased, the focus expanded to initiatives such as complianceonline.com. It was a good idea but it had a limited audience.
With the limited market opportunity in process GRC, we explored areas that were automation heavy and less process oriented. However, we did not move fast enough, especially into segregation of duties. We saw Virsa (acquired by SAP) go by, the same with Logical Apps (acquired by Oracle), OpenPages (acquired by IBM) and Paisley (acquired by Reuters). As companies grow, it becomes increasingly hard to change. Our willingness to take on more risk or change had waned.
By 2006, with the company back on its feet and an expanded management team, improved balance sheet and marquee customers, I felt it was time to work on something different. I resigned from MetricStream’s board and shifted my focus to OpsDynamics, a completely different venture that I co-founded with Vasant Sanjeevan, a colleague from my days at Oracle. It was self funded with a great set of customers and we had ultimate control of our destiny. Over the last 6 years at OpsDynamics, I’ve had the opportunity to work on various projects, including several at Google, and be a part of something special! A few months after I left MetricStream, Vinod Khosla resigned from the board.
With the financial meltdown in 2008, MetricStream stumbled into a new market, the financial services market. This market opened the doors for MetricStream’s solutions in new vertical markets. RFPs started to flow in and the demand continued to increase. Since 2008, the growth has been strong across financial services, life sciences, energy and hi-tech industries.
So, while it has taken 14 years to get to where it is, it wouldn’t have been possible without the efforts of the early contributors (several of whom are still at MetricStream). Without all the heavy lifting from Arvindh Balakrishnan, Bhaskar Vasudevan, Albert Thomas, Peter Chow, Dmitriy Rogatkin, Carl McCauley, Ted Daley, Vegi Srinivas, Supradeep Appikonda, Hongen Zhang, Sureshram Venghatachari and several others, the company wouldn’t have survived. I can’t thank these folks enough for their contribution and sacrifices!
Hats off to the current MetricStream team, including Shellye, Gunjan and Venky Yerrapotu for their continued commitment and leadership as the company grows beyond 1,000 employees and rides the GRC wave.
There is no question the experience at MetricStream was invaluable. Arvindh and I did several things right and several things that we’d like to have back. Would we have started MetricStream had we known what was in store for us? We probably would have, except we would have done a few things differently. We would have conserved cash more aggressively when the market crashed, built a deeper board, taken money early on from a VC in addition to Quest (corporate investors are not as resourceful), and gone after larger market opportunities in the GRC space.
So, here are a few parting messages. Ensure you have 12 months of cash, ensure you have a line of credit that you can draw on. Build a capital efficient company, but ensure you build a product that delivers significant value. Ensure that you have a board with deep pockets (VCs with deep pockets included). Ensure you have a huge market opportunity . Do one thing and do it really well. Be prepared to stick through it for 10 years or more. Invest in your product. It really comes down to your product and market in this age of cloud and mobile in the Enterprise. Most important of all, spend time building a work culture that will make the journey fun - it matters in the long run!