Finding a Product Market Fit

December, 2019

We recently sat down with Asaf and several CEOs on the Vintage podcast (available on Apple Podcasts, Spotify, or wherever you listen), to get an idea of when they each felt a company has reached a product-market fit. While any CEO can explain that there is no magic formula to immediately finding a fit, they shared some interesting perspectives that can be helpful for anyone in their entrepreneurial journeys. Below are the highlights from the conversation (the entire podcast can be found here). 

Asaf Horesh, General Partner at Vintage

Evan Chesir: How do you identify when a company, and especially a company using technology to manage data, has a product-market fit?

Asaf Horesh (General Partner, Vintage): It’s to see that there is traction, meaning there are new customers that are using the product. Then there is engagement, meaning the customers that are using the product are repeatedly using it across several features and want to extend the usage of that product. So that’s at the very basic level. You want to see the market reacting to the product and you want to see the existing customers using the product.

Evan Chesir: So customers plus engagement…

Asaf Horesh: New customers. It’s not plus. There is some kind of an equation that you have to put weights on and whatnot, but it’s not that methodical. But yeah, but these are the core components. Obviously all of that becomes very clear when you see numbers and dollars, but these are the pillars.

Evan Chesir: So tech market and execution. What do you base the technology on?

Asaf Horesh: Tech is confirmed for the stage of the venture we’re at, right? So a startup always develops new technology to complement or to find new markets and new customers. But yes. When we generally invest, it’s typically the stage that there is limited tech risk.

Liran Eshel, Founder and CEO at CTERA Networks

Evan Chesir: One of the main challenges of early and even late-stage companies is finding that fit. Was there an ‘aha’ moment? How did you get there?

Liran Eshel: I think it’s something that’s an ongoing process. And sometimes you have outliers, you close a very large deal and you’re convinced that this is necessarily the path for the future. But again, the one deal is always one deal. I think when we have three major customers in a vertical, that’s where we say, “Okay, there’s something here.” One is not enough. You can close the large deal. ‘Ah, it’s amazing,’ but it’s not enough. You have to have three major logos in the centered industry and you need to start the standardizing.

Evan Chesir: So three logos in an industry may mean you have something going for you. So Liran, give me some background. How did CTERA begin and find its fit?

Liran Eshel: The roots of CTERA are actually in cyber. We’re actually security guys that came to disrupt the storage market. And the idea is it’s similar to how security runs as a managed service, storage is going to also be part of that service, cloud service. And when we started, you know, cloud was just starting in the enterprise and the ability to provide a secure cloud experience was a major breakthrough for enterprise companies. We brought the secure storage experience to the enterprise, that was a promise. And that’s how CTERA started.

Evan Chesir: So there’s an issue of security moving into the cloud. That was the main concern initially?

Liran Eshel: Yeah, I think when you look at customers and you ask them, “Are you going to be in the cloud?” They say, “Sure.” But when they need to make a decision about moving, you know, corporate data, IP, sensitive data to cloud, then some people start to become nervous. And it’s all-natural. So what do you do? You create a private cloud, you create the security fence around it and these are the challenges they deal with.

Evan Chesir: What were they nervous about? We are talking about 10 years ago?

Liran Eshel: Yes, maybe eight years ago, even. Even today, people are nervous. Are they’re going to lose their job because they’re going to see the company in the newspaper tomorrow about the major security breach, right? It’s always safe if you continue what you have. If you did that for too long, you found that the data is exploding, you cannot afford to keep adding data and the agilities of your competitors is much better.

Evan Chesir: So how do you go from being a cybersecurity company to being a data management?

Liran Eshel: So first of all, cybersecurity team, not the company, but yeah, you build a solution that’s from the ground up, building with security in mind. It gives you the ability to run in a black site, right? Give you military-grade encryption and acts and authentication capabilities. And that sets us apart.

Liran Eshel: We provide enterprise file services solution. That allows them to run on top of any cloud, basically with cloud agnostics, multi-cloud. And we provide it in a very secure and accelerated way. Secure meaning that you can fully control where data sits and how it’s encrypted and authenticated, and accelerated means that we allow you to connect to remote locations. The people that work with the data, a distance from the cloud and with our solution provide different caching and acceleration technologies that allow you to work remotely from the cloud, but with the speed of local networks.

Romi Stein, CEO and Co-Founder of OpenLegacy

Romi Stein: OpenLegacy is a software platform to enable and deliver digital services from core back end applications. What it really means is that we help large enterprises, no matter how complex is their IT infrastructure is, to go truly digital. And essentially we take care of the heavy lifting kind of on the backend. The ability to connect to your systems of records and the ones where you do have the actual business processes.

Evan Chesir: So you’ve seen on the back end startups delivering the technology to help corporations digitize and move ahead. As a founder and specifically the founder of an API management digitalization tool, how can startups make themselves more core to a corporation’s business? Are there any strategies you yourself have tested?

Romi Stein: First of all, every founder I can relate to probably thinks that he has the best invention since sliced bread. It’s not about technology – at the end of the day, it’s about humans, which is sometimes a bit disappointing to find out because technology is wonderful and it can do everything automatically and you can prove that it works in a pilot or a POC. But then you run into the human element. You cannot underestimate the power of human.

Romi Stein: And what really is in order to bring, I would say, endorse all those innovations and for a small company to really make a difference in the world, obviously they need that the channel, the partner, the enterprise, and in order to convince that enterprise they a lot of times they need to… The enterprise actually needs to go through a change management or figuring out how they endorse it, how they make internal changes? So if there is a great challenge in the industry, I would say it is…how do we as a start-up work with enterprises, beyond just the innovation officer for that organization? How can the startup go deeper? I would even be bold and say how startups can win the hearts and minds of the organization they are looking at? How can it affect the people in the organization?

Romi Stein: Not only the people but also the executive of an organization in a way that it goes kind of cross domains and cross-departmental. That’s the challenge because a startup can have a wonderful idea and for the benefit of society and the greater good and all of those nice things. But then they would need the enterprise to make it a reality because they have the clients, they have the routes to market, and that’s kind of where sometimes there’s some gaps or expectation gaps or cultural gaps. And I think that’s why I find that technology is one leg, and well everyone knows about it, but the key challenge for startups to be successful and growing is really the ability to penetrate that… Ability to collaborate with, again, the enterprise and bring the enterprise to a place where they are comfortable to do some of that change management.

A Vintage Case Study

Evan Chesir: So all this is great, but I want to take one step back. I asked Asaf, the partner here at Vintage, for a real-life example, a real story of how they looked at a company in the enterprise infrastructure data space and how they decided to invest.

Asaf Horesh: There are three deals that I was involved in while at Vintage. One is Alooma who was, which was recently acquired by Google. The other one is, who announced their Series D fundraise. And then the last one is Zerto – a company doing well.

Evan Chesir: So what was the process for investing in one of them? Say Alooma?

Asaf Horesh: When we looked at Alooma, they were actually relatively early at their commercial stages. Meaning there were dozens of customers, there was a revenue run rate which was significantly below where we typically look at the average deal. So the question was again, are they at a stage where there is sort of a product-market fit? There were a few things that kind of convinced us that this is an interesting venture that we would like to take part in.

Evan Chesir: Was that a big concern of yours?

Asaf Horesh: There is basically the funnel of deals that we see, like the funnel companies that we see, and if they fit within the typical deal that we would do, then you can run the due diligence and say what concerns you, what’s not right? But if for some reason they are outside the boundaries of a typical deal, and this one was outside the boundaries in terms of the stage of the company, i was earlier than we typically do that. And if you are earlier than you typically do, then you obviously add risk, right? There is still that sort of technical risk because there are only few dozen customers, so the product is still not fully baked. And there is the market risk in terms of the product-market fit that we spoke about before. The set of customers is much smaller.

Asaf Horesh: But so I think two things really kind of convinced us, right? I would say the first one is everybody could see that there was a shift in the market from batch to real-time, right? So there is like… Not going to get into the specifics, but you know, ‘how do you transfer information that you want to run analytics on?’ It used to be in batches and it was clear that the market is going to go to realtime. So that was one of the main drivers behind the thesis of Alooma, right? So that was clear. And if you look at that time Talent, which is a French company, went public in New York, and published their S1 and all the presentation and whatnot, and it was clear that that was one of the drivers for the IPO, and you know-

Evan Chesir: This shift from doing the transferring data from patches to realtime by corporations?

Asaf Horesh: Yes, yes. By businesses. So if you want to run analytics, you have to know real-time what the data is building. So that was one thing and there were… They had the tailwinds, there were a few of those, but that was the main one, if I recall correctly.

Asaf Horesh: The other thing that kind of convinced us is that because we have so many corporates coming to visit us through our Value-Added Services activities, this was a common problem that we’ve heard from them. That they were looking for solutions to solve the problem of unifying and combining the data points that they have into one holistic entity. And how you put this all together and all the spaghetti that goes into their IT infrastructure. We’ve heard this question so many times from different corporates that we knew that was a real problem.

Evan Chesir: Now let’s talk about the fact that businesses needed to find new ways to transfer their data. When you say that, you’re saying transfer their data to the cloud or you’re saying transfer their data from place one to place two? Is it a given that they’re going to be storing information off-price, offsite, off-premise?

Asaf Horesh: Yeah. So well that’s a good question. So I think the trend to go to the cloud is very clear. This is something that’s been happening for the last decade or so. Maybe even more than that. We saw also in regulated industries that it’s very clear some of the data needs to sit on-prem. It’s just in terms of regulation. So the need for a hybrid cloud is also something that’s been in discussions for a very long time.

Evan Chesir: Were there any, you know, with all these corporations coming through, I’m assuming you saw that this was a pain point. Was this THE pain point being experienced?

Asaf Horesh: It’s a very good question. I don’t know. The answer is I don’t know. But what’s really easy to do see is that the legacy corporations are going through real IT overhaul. They’ve been around for decades, right? And their IT stack was very set. They had their storage, they had their compute, they had the networking, but now…they’re trying to transition to the cloud, so everything changes. And now you have applications centered around on-premise, they have applications that are off-premise on the cloud, SAS applications, websites, and everything is kind of shifting for them. And that sort of what drives the fact that that data is stored across multiple regions, on and off-premise and across the world.

Many thanks to Asaf Horesh for joining us along with Liran Eshel, and Romi Stein.


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