Behind the Cloud

SUMMARIES.COM is a concentrated business information service. Every week, subscribers are e-mailed a concise summary of a different business book. Each summary is about 8 pages long and contains the stripped-down essential ideas from the entire book in a time-saving format. By investing less than one hour per week in these summaries, subscribers gain a working knowledge of the top business titles. Subscriptions are available on a monthly or yearly basis. Further information is available at www.summaries.com. BEHIND THE CLOUD The Untold Story of How Salesforce.com Went From Idea to Billion-Dollar Company – and Revolutionized an Industry MARC BENIOFF MARC BENIOFF founded Salesforce.com in 1999 and currently serves as chairman and CEO of that company. Salesforce.com is a leader in enterprise cloud computing and has received a Wall Street Journal Technology Innovation Award. Mr. Benioff worked for Oracle Corporation before starting Salesforce.com. He is the author of Changing the World and Compassionate Capitalism. Mr. Benioff also launched the Salesforce.com foundation in 2000 which contributes one percent of the company’s profits, one percent of equity and one percent of employee hours back to the communities it serves. Salesforce.com was the first dot-com to be listed on the New York Stock Exchange and today generates more than $1 billion in annual revenues. The company is a leader in the Software-as-a-Service (SaaS) industry it pioneered. Behind the Cloud - Page 1 MAIN IDEA “A little over a decade ago, Clayton Christensen wrote a book called The Innovator’s Dilemma. It illustrated how a start-up company – by employing innovation that disrupts existing business models – will always beat established big companies. It validated us for what we knew was right: the future wasn’t about simply improving on what was already done; it was about being bold enough to make big, sweeping, dramatic changes. With those ideas in mind, I started Salesforce.com with a mission to do enterprise software differently. At the time, companies were paying hundreds of thousands to buy and millions to install applications that were costly and frustrating to maintain. We wanted to take advantage of a new platform – the Internet – to deliver business applications cheaply through a Web site that was as easy to use as Amazon.com.We had to think out of the box. Literally, no more packaged software. And figuratively, as no one then was selling subscriptions for business applications and delivering them over the Web. In 1999, I recruited three developers, rented an empty apartment, brought in a few computers, and turned the bedroom closet into a data center. We soon had a prototype of the service running, and over the next few months a steady stream of new employees, potential users, investors, and reporters coming by to see what was happening and share their insights to help us build something better. Now, ten years later, our small company is a big one. The few initial employees who gave Salesforce.com everything have grown into a few thousand employees. Revenue has escalated to more than $1 billion a year. Now we are excited by how the industry’s growth will unleash further innovation. This only makes the future more exciting for everyone.” – Marc Benioff 1. The Start-Up Playbook – Get through all the normal start-up phase requirements . . . . . . . . . . . . . . . . . . . Page 2 2. The Marketing Playbook – Figure out how to cut through the noise and pitch the big picture . . . . . . . . . . . . . Page 3 3. The Events Playbook – Use events creatively to build buzz and drive business to come to you . . . . . . . . . . . . Page 4 4. The Sales Playbook – Energize your customers and make them your sales team . . . . . . . . . . . . . . . . . . . Page 4 5. The Technology Playbook – Develop drop-dead great products users love . . . . . . . . . . . . . . . . . . . . . . Page 5 6. The Philanthropy Playbook – Make your company care about more than just the bottom line . . . . . . . . . . . . . Page 6 7. The Global Playbook – Progressively introduce your product into more new markets . . . . . . . . . . . . . . . . . Page 7 8. The Finance Playbook – Learn how to raise capital and generate a return without selling your soul . . . . . . . . . . Page 7 9. The Leadership Playbook – Create alignment which is the key to organizational success . . . . . . . . . . . . . . . Page 8 Get through all the normal start-up phase requirements 1 2 3 4 56 8 7 9 Figure out how to cut through the noise and pitch the big picture Energize your customers and make them your sales team Develop drop-dead great products users love Make your company care about more than just the bottom line Progressively introduce your product into more new markets Create alignment which is the key to organizational success Use events creatively to build buzz and drive business to come to you Learn how to raise capital and generate a return without selling your soul Start-Up Marketing Events Sales TechnologyPhilanthropy Global Finance Leadership How to grow a billion-dollar company from the idea you already have in mind Marc Benioff started working at Oracle in 1986 and by 1996 had worked his way into being senior vice president. He didn’t want to become a corporate lifer so he decided to take a sabbatical from work to think about what he wanted to do. He rented a hut on the Big Island of Hawaii and started thinking about the future. Marc kept on thinking about how the Internet was changing everything for consumers. Benioff decided the Internet would change the landscape for businesses as well and would provide a whole new way to deliver business software applications. Even though he couldn’t yet clearly articulate what he wanted to do, Marc decided to take the plunge and start a new company. His vision was to do something to make software easier to buy and to use. Instead of companies buying software and then maintaining it on their own machines, he came up the idea of what is now termed “cloud computing” – companies pay a per-user per-month fee for the services they wanted to use which would be delivered to them via the Internet. This is also called “Software-as-a-Service” or SaaS. Benioff decided this model would work exceptionally well for sales force automation or customer relationship management (CRM). Siebel Systems had just at that time gone public which Marc knew all about because he had been an early-stage investor. Benioff decided CRM was the perfect product to be delivered on-demand as a service. Marc Benioff pitched the idea of selling a SaaS style subscription service to Tom Siebel, the founder of Siebel Systems. He liked the concept and invited Marc to join Siebel but Benioff decided he would be better off going after it on his own. So he hired three programmers with sales force automation and Internet experience and got them working in a one-bedroom apartment he rented next door to his own house in San Francisco. In true start-up fashion, they didn’t have any office furniture so they used card tables and folding chairs. Despite the rather austere setting, within a month they had their first prototype Web site set up and running. “Our focus was directed at developing the best possible and easiest to use product, and this is where we invested our time. Realize you won’t be able to bring the same focus to everything in the beginning. There won’t be enough people or enough hours in the day. So focus on the 20 percent that makes 80 percent of the difference.” – Marc Benioff Benioff wasted no time in getting his friends and colleagues to visit the apartment and try the prototype Web site out. Their feedback was invaluable in coming up with something good. This is the opposite of the usual business model where software is developed in secret. By asking early users for feedback and then taking their ideas to build a more attractive product, the end result was a software product which was robust yet simple – kind of like Amazon.com’s Web site. In the early days of Salesforce.com, Marc Benioff was still working half-days at Oracle. Eventually, he realized he would have to take the plunge and commit to his new enterprise. He was good friends with Oracle CEO Larry Ellison who acted as a mentor and Ellison ended up investing $2 million in seed money for Salesforce.com and joined the board of directors of the new company. In exchange for that help, Ellison asked Benioff not to recruit for the talent he would need to grow the company from Oracle. Ellison made Benioff promise he would take no more than three people from Oracle and he honored that commitment. By the summer of 1999, Salesforce.com had ten employees and a two-page Web site – a home page and a recruiting page. This was in the middle of the dot-com boom and Internet companies were growing like wildflowers everywhere imaginable so nobody paid much attention to Salesforce.com. The company quickly outgrew the one bedroom apartment and soon took over Marc Benioff’s house as well. He decided more space was needed and hired an eight thousand square feet office in the Rincon Center located in downtown San Francisco. The engineers loved the new office because it was long and narrow. They took to driving golf bal ls down the length of the off ice and flying remote-controlled helium blimps in their spare time. “We had no office furniture, so we put tables by the outlets that were already there. Everyone had to set up his or her own desk (we bought sawhorses and doors at Home Depot), and employees received their computers in boxes and put them together themselves. It was an archetypical California start-up scene with a dog in the office and a mass of young and energetic people wearing Hawaiian shirts, working hard, and subsisting on pretzels, Red Vines licorice, and beef jerky. In typical dot-com style, we exploded. By the time cofounder Dave Moellenhoff returned from his three-week honeymoon in November 1999, the staff had doubled. One year after we moved into the Rincon Center, we were bursting out of the space. Three salespeople had desks in a hallway, and five IT specialists had taken over the conference room. Our next move, in November 2000, was to shiny new offices at One Market Street. It was only a block away, so we put our servers on office chairs and rolled them across the street. Although we were not going any great distance geographically, the leap ushered in an entirely new era for our company.” – Marc Benioff Behind the Cloud - Page 2 �Always give yourself time to recharge when you leave your job and look to start a business of your own. �Have a really big dream and believe you can pull it off. �Tell a select few what you’re planning on doing and then listen carefully to the advice they give you. �Hire the absolute top talent in your field. �Be fully equipped and willing to sell your idea to skeptics anywhere anytime and respond calmly to your critics. �Work on what is most important only. �Define the values and the culture you want to establish in clear cut terms right up front. �Listen intensively to prospective customers. �Make sure what you do defies convention. �Have one trusted mentor and listen to what he or she says. �Keep adding new talent as fast as you can afford to. �Be willing to take risks – don’t hedge your bets but back your judgment. Get through all the normal start-up phase requirements 1 Start-UpIdea to Billion- Dollar Company On July 21 1999, the Wall Street Journal ran a front-page story called: “Canceled Programs: Software Is Becoming an Online Service, Shaking Up an Entire Industry”. The article spoke about the software-as-a-service concept and generated more than five hundred leads for Salesforce.com even though the launch was still six months away. Other publications also picked up on the end of software as we know it theme and ran follow-uparticles. “Whether or not you engage a PR firm, always ask yourself: ‘What’s my message?’ Position yourself either as the leader or against the leader of your industry. Every experience you give a journalist or potential customer must explain why you are different and incorporate a clear call to action. This does not require a large team or a big budget; it just requires your time and focus.” – Marc Benioff Salesforce.com’s mission was to offer a new and better way to serve customers by declaring war against the traditional and ineffective way software was being delivered. To launch the offensive, the company spent $600,000 holding a lavish launch party for 1,500 people at San Francisco’s Regency Theater. Marc Benioff (dressed in army fatigues) stood up at that party and told everyone: “We are going to be a $100 million company three years from now. We’re going to be the last dot-com.” To reinforce what Salesforce.com was all about, the company’s advertising guru came up with the NO SOFTWARE logo – the word SOFTWARE in a red circle with a line through it similar to that famously used by Ghostbusters. Marc Benioff loved it since the idea was simple, sexy and fun. It also tied in perfectly with the phone number 1-800-NO-SOFTWARE. Interestingly, just about everyone else at Salesforce.com hated the logo concept. Some pointed out it wasn’t strictly correct, since the company still made software but just delivered it differently. Others thought using a negative message was unwise. Benioff shrugged off these concerns and insisted the logo be used on all the company’s communications materials. To supplement the concept, Marc Benioff also developed an ad which showed a fighter jet (Salesforce.com) shooting down a biplane (the company’s entrenched competitors using obsolete tools). This somewhat provocative graphic image was not only used as an ad but was also picked up by a number of editorials which were writing about the pending downfall of the software industry as a whole. The audacity of this kind of ad appealed and the underlying message was interesting so it generated lots of free publicity for Salesforce.com. The company routinely and consistently portrayed itself as an upstart going up against the market leader. This was a very deliberate approach since the media loves David-versus-Goliath style storylines. Salesforce.com constantly brain stormed how it could use whatever marketing the market leader (in this case Siebel Systems) was doing to its own benefit. One time, when Siebel held a conference in San Diego, Salesforce hired bicycle rickshaws to offer free rides from hotels to the conference center. While they were in the rickshaws, the conference attendees were given free Krispy Kreme doughnuts and coffee in mugs that cited a famous quote by US Bancorp analyst Piper Jaffray: “Wake up Siebel. Salesforce.com is a disruptive technology and is slowly moving in on the CRM prize.” A similar strategy was also used at Siebel’s European conference in Cannes, France where free airport taxis from Nice to Cannes were paid for by Salesforce.com. Salesforce.com also came up with ads around themes like “Don’t get bullied” and “I will not give my lunch money to Siebel.” Eventually, Siebel started responding to the ads which had the unintended effect of legitimizing Salesforce.com as a viable competitor in its own right. Even though Salesforce.com was just a tiny start-up, the press loved the fact it was pledging to upend the industry leader. This was a great storyline which was further enhanced by the fact Marc Benioff worked hard to cultivate relationships with a few selected journalists. He paid extra attention to around two dozen journalists and made sure they had access to information which would be helpful in writing their articles. Another thing Salesforce.com did quite well was to develop some metaphors which explained what the company was all about. Some of the metaphors the company used include: “Salesforce.com is Amazon.com meets Siebel Systems”, “Force.com is the Windows Internet operating system” and “AppExchange is the eBay of enterprise software”. By creating these metaphors, Salesforce.com explains its services and communicates the message it wants to get out there. Metaphors are also useful for journalists because they are always on tight deadlines. Anything you supply them can be extremely helpful when they are developing the stories they want to write. “Relate your product to something that is current and relevant and that everyone understands.” – Marc Benioff Behind the Cloud - Page 3 Figure out how to cut through the noise and pitch the big picture 2 MarketingIdea to Billion- Dollar Company �Position your company as either the leader in your industry or going up against the leader with something better. �Have a big launch event that makes people sit up and take notice because of your brash predictions. �Create a persona of someone who walks the talk. �Do something bold whichwill definitively differentiate yourself. �Make each and every employee a key player in your marketing team by ensuring everyone understands and uses the same message. �Look for opportunities to leverage your competitor’s activities to the benefit of your company. �Always position yourself as David against some Goliath. �Let your marketing tactics dictate your strategy, not the other way around. �Engage the market leader and force them to acknowledge you. �Never forget reporters are writers so give them a juicy story they will really get into. Cultivate strong relationships with select journalists who will be most influential. �Develop your own metaphors to explain what you’re doing. �Have no sacred cows when it comes to marketing. Insist that every marketing idea stand on its own two feet. Idea to Billion- Dollar Company Running events in different cities is a great way to build buzz for what you have to offer. Salesforce.com found the best format for these events was to have a brief keynote and then a live demo of the product where existing customers are called on to answer the questions that come up. This is a great way to make customers an integral part of your marketing force since the answers they give will have tremendous credibility. Just make sure these events are held in a setting which reflects the fact you’ve got a world-class product so don’t scrimp. “What we do is quite simple. We rely on the quality of the product and provide an opportunity for the product to be discussed. The most effective selling is done not by a sales team but by people you don’t know who are talking about your products without you even being aware of it. In this era, those conversations are more frequent and more public than ever. They are not happening behind closed doors, but 24/7 in the blogosphere and on social networking sites. Instead of fearing those public conversations, companies must cater to them and leverage them. By providing a forum for customers to meet, you can be a participant in these exchanges and use the viral effect to your advantage.” – Marc Benioff The other great thing about events is running them positions your company as a thought leader in your market niche. By running killer events, you always stay in the forefront. Salesforce.com holds launch events every six to eight weeks so there is news and fresh ideas going to the press all the time. You then act like the market leader in-between times. When new competitors arise, welcome them with open arms and point out this validates your success. Seize events outside your industry and ride them for all they are worth as well. Use any outside events to stay relevant and interesting. If you act like your company is the instigator of everything newsworthy which happens and keep repeating that thought often enough, sometimes the press and the media will buy it and you’ll be able to move from one level to the next. “There’s a lot of prep work necessary to execute a flawless event. Develop your plan to acquire contacts. Define success metrics. Est