Key Moments
Diane Greene at Startup School 2013
Y CombinatorKey Moments
Diane Greene shares lessons from founding VMware: big vision, humble beginnings, strategic funding, and user-centric product development.
Key Insights
Start with a big vision but focus on a clear, achievable first milestone.
Humble beginnings are common; prioritize essential resources over lavish office setups.
Strategic funding is crucial: begin with self-funding, then carefully select technically savvy angel investors, and later pursue strategic partners.
Product development should focus on solving real user problems and delighting customers.
Building credibility and strategic partnerships are key to entering challenging markets like the enterprise space.
Embrace luck and position your startup to capitalize on unforeseen opportunities.
Protect intellectual property from the outset, especially when facing established industry giants.
Family integration can be managed successfully within the demanding startup environment.
EARLY DAYS AND HUMBLE BEGINNINGS
Diane Greene reflects on her return to an auditorium she first visited in 1989. She details her founding of VMware in 1998, a company that pioneered the virtualization industry by creating a software layer between hardware and the operating system. This innovation allowed multiple operating systems to run on a single machine, significantly increasing efficiency. The company started with a grand vision, aiming for ubiquity by 2000, though they ultimately achieved this goal years later. Their initial office space was modest, located above a cheese shop, emphasizing a lean approach to resources, with an exceptional office manager playing a crucial role in operations.
THE FOUNDING TEAM AND VISION
The founding team of VMware consisted of Greene's husband, a Stanford computer science professor, two of his graduate students (Ed and Scott), and an undergraduate employee. Greene emphasizes that the company was built on a big vision: to lessen constraints and facilitate innovation for system builders and end-users. They aimed to push boundaries and set ambitious goals. Despite personal commitments, including Greene's second pregnancy shortly after founding the company, the team was dedicated. The family's integration into the startup journey is highlighted, with their son's birthday party involving a memorable move in a pickup truck, symbolizing how personal lives were woven into the demanding startup experience.
STRATEGIC FUNDING APPROACH
VMware's funding journey began with self-funding from the founders and immediate family, adhering to a strict 'no friends' policy. After initial self-assurance of the product's viability, they sought angel investment from technically sophisticated individuals like Andy Bechtolsheim, John Hennessy, and David Cheriton, who understood the technology, simplifying the funding process to a single phone call. Later, as the company prepared to enter the challenging server market, they strategically sought investment from hardware vendors like Dell, aiming for partnerships that would provide market access. This was particularly crucial given their belief that the tech bubble was about to burst, leading them to maintain a stable valuation pre-bubble.
PRODUCT DEVELOPMENT AND MARKET ENTRY
With a grand vision for virtualization, VMware focused on a critical first milestone: a desktop product enabling users to run Windows on Linux or Linux on Windows. This decision minimized dependencies on hardware or OS vendors, allowing them to control their destiny without concessions. The performance had to be adequate for practical use. Launched as a Linux tool, the product was initially offered as a free 30-day trial, with commercial use priced at $299 and hobbyist use at $99. This pricing strategy, coupled with a trust-based system, was an innovative approach to market entry and initial customer acquisition.
MARKETING AND PUBLIC RELATIONS SUCCESS
Spreading the word about VMware's innovative product was a challenge. They decided to launch at the DEMO conference, intentionally bypassing a hired marketing person and handling the process themselves. Their audition for a stage spot was unconventional, involving a staged 'keyboard drop' to seamlessly switch to a backup computer when the first one crashed. This led to a standing ovation for creatively demonstrating the product. They also leveraged platforms like Slashdot, a key hub for Linux developers, and focused on securing press coverage, including a significant Wall Street Journal article, to build credibility without significant marketing expenditure. An early bandwidth issue during launch was solved by a student at Cornell, who later interned with the company.
NAVIGATING INTEL AND MICROSOFT
From its inception, VMware faced the formidable challenge of operating between industry giants Intel and Microsoft. The company proactively filed patents to protect its intellectual property, though Greene acknowledges the difficulty of defending against monopolies with limited resources. A notable legal strategy involved suing Microsoft when they attempted to acquire a company that had allegedly copied VMware's technology. While this didn't prevent the acquisition, it reportedly slowed Microsoft's integration of the acquired code. This experience underscored the importance of IP protection and strategic legal maneuvering when dealing with dominant players in the tech landscape.
BUILDING A BOARD AND GOING ENTERPRISE
As VMware evolved, securing external board members became a priority. Greene strategically sought out individuals with deep experience and a strong understanding of the tech industry's complexities. Larry Sonsini, a prominent business-minded attorney, was recruited for his ability to help navigate the challenges posed by Intel and Microsoft. Greene's approach to recruitment involved demonstrating a clear need for their expertise beyond just their influence or wealth. This external guidance proved invaluable as the company prepared to enter the highly competitive enterprise market, a move met with skepticism by many industry observers and bankers.
OVERCOMING ENTERPRISE MARKET CHALLENGES
Entering the enterprise market presented significant hurdles, with many experts doubting VMware's ability to gain traction. Greene recognized that building an enterprise sales force was not feasible initially. Instead, they forged partnerships with hardware vendors, identifying a symbiotic relationship where VMware could help hardware companies sell their high-margin servers. A pivotal moment came with IBM, initially hesitant due to concerns about the use of GPL Linux in VMware's distribution. However, a revised agreement where resellers sold VMware bypassed this legal issue, leading to a breakthrough partnership. The company was invited to keynote IBM's worldwide reseller conference, which ultimately propelled VMware's server market adoption.
THE POWER OF A BELOVED PRODUCT
The ultimate success of VMware, as emphasized by Diane Greene, stemmed from creating a product that users genuinely loved and found indispensable. She shares anecdotes of receiving enthusiastic feedback, including comparisons to landing on the moon, highlighting the profound impact their virtualization technology had on users. The Wall Street Journal's coverage, framing VMware as a force for 'freedom of choice' on the desktop, further illustrates the positive reception. Greene concludes by wishing aspiring entrepreneurs luck, acknowledging that each startup journey is unique and challenging, and reinforcing the core idea that building something truly useful and appreciated is the ultimate reward.
Mentioned in This Episode
●Software & Apps
●Companies
●Organizations
●Books
●People Referenced
Common Questions
Virtualization is a layer of software between hardware and the operating system that allows multiple operating systems to run on a single computer or across computers. VMware pioneered this industry, making systems more efficient and easier to use.
Topics
Mentioned in this video
A company whose internet television project was the origin of the speaker's first startup.
A major hardware vendor that became a strategic partner and reseller of VMware products.
A dot-com era company that, along with others like Webvan and Toys.com, created a cautious market environment for new startups.
A major hardware manufacturer that was a key player in the x86 architecture and had interactions with VMware regarding IP.
A dot-com era company that, along with others like Toys.com and Pets.com, created a cautious market environment for new startups.
A law firm where Larry Sonsini was the managing partner, and from which VMware sought legal counsel.
The virtualization company co-founded by the speaker, which she discusses extensively.
The location above which VMware had its first office.
A hardware vendor that was convinced to invest in VMware and later became a partner.
Mentioned in a customer's email as a comparison for the perceived intelligence of the VMware team.
A major technology company that acquired the speaker's first startup and was a competitor/partner in VMware's journey.
Acquired a company founded by an early employee of VMware.
A dot-com era company that, along with others like Webvan and Pets.com, created a cautious market environment for new startups.
One of the largest companies in Silicon Valley where the speaker worked as a software engineer in 1989.
Mentioned as a potential topic for Time magazine cover, indicating a rising profile of Linux at the time.
Founder of VMware and the speaker, sharing her startup experiences.
One of the technically sophisticated angel investors in VMware.
Founder of Dell, who invested in VMware and was quoted in CNET regarding Linux companies.
One of the technically sophisticated angel investors in VMware.
A powerful attorney and managing partner of Wilson Sonsini, who became an invaluable board member for VMware.
The university where a sophomore student helped VMware by hosting their site when they ran out of bandwidth.
An industry analyst firm that VMware attempted to engage with.
An industry analyst firm that VMware sought to meet with, though initially met with someone from the auto industry.
The university where the speaker's husband is a professor and where one of their former students returned to complete a PhD.
A news outlet where Michael Dell's quote about Linux companies was published.
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