March 18, 2020 –Most startup founders bang their heads over the challenge of product-market fit. How can they convince investors and potential customers that what they’ve built satisfies strong demand?
Guru Pangal didn’t have that problem. But as the founder of the three-year-old CloudSimple, which provides dedicated clouds for enterprise applications, and which Google Cloud acquired this past November, he had plenty of other challenges. And none were small.
A few years ago, Pangal was working at Microsoft’s Azure cloud computing service. The tech giant had bought his prior startup, StorSimple, which provides cloud-integrated storage.
“We were trying to bring all these traditional enterprises to the cloud,” says Pangal. “We would have these CIOs come in and say, ‘In the next two years I’m moving all my digital workloads out of my data center to the cloud.’” They all wanted the flexibility and innovation the public cloud offers.
“But then two years would pass,” he says, “and less than 20 percent of their workloads moved.”
Pangal knew that enabling clouds to provide the right platform to enterprises to move their traditional applications could be a game changer. So he “poked at the problem” and two things were evident. First, traditional enterprise applications were built for the legacy stacks in data centers and not suited for the scaled-out architectures of cloud computing. Second, moving to the cloud meant re-architecting those apps and that meant disrupting a company’s operations.
“CIOs are thinking, ‘If everything’s working and there’s nothing dramatic to fix, why should I do this?’” says Pangal.
Given this, he worked with Mayfield’s Navin Chaddha and Ursheet Parikh, to come up with some possible solutions to this problem.
In 2016, with Series A funding led by Mayfield, Pangal launched CloudSimple. As its name implies, it provides a platform and a service to provide companies a seamless way to move their enterprise workloads out of private data centers to the public cloud, where they can take advantage of the cloud’s elasticity, lower costs, scalability, geo-availability and rich set of features and functionality.
It wasn’t a tough sell. “We would go talk to customers and they would just love it,” says Pangal of his earliest pitch meetings. “They were like, ‘Yeah this is awesome. When can we have this?’”
And that’s where things get tricky. Pangal found himself, as he says, “dancing with giants.”
Friend or foe?
CloudSimple provides its service by partnering with VMWare, the cloud computing and virtualization software and services giant, which is the chosen platform for enterprise applications, accounting for up to 80 percent of all private data center workloads. Because of VMWare’s size and position in the market, CloudSimple chose to provide “VMware-as-a-Service” to customers.
However, VMware had its own priorities. And naturally, moving enterprise applications to their platform was a key strategy. So it shouldn’t have been too surprising for Pangal to find out, six months into his startup, that VMware and Amazon Web Services were working on a similar cloud service.
“It turned out that they had been working on it for the past two years,” says Pangal. “We were debating internally, ‘Do we need to pivot?’”
When the two tech giants released their service six months later, it was exclusive to AWS. That meant Pangal still had plenty of market share to gain by going after Azure, Google Cloud and others. “That was an interesting inflection point because we could have lost everything,” he says.
But that early uncertainty would continue to dog CloudSimple. “It was always the case that we didn’t know when we’d be killed,” says Pangal.
Tuning out the noise
In addition to VMWare, Pangal’s small startup was dependent on two other big tech players: It was dependent on Google and Microsoft to provide the bare metal infrastructure (the physical servers), to overlay their control panel on top of GCP and Azure and provide “VMware-as-a-Service” to enterprise customers.
Unfortunately, GCP and Azure plans didn’t always match with CloudSimple, says Pangal.
Microsoft for example, had tangled a decade earlier with VMWare as the virtualization market heated up. Both companies tried to best the other in pricing, licensing, and services.
“So, these guys had a history and here was this startup trying to make them play ball,” says Pangal. “And that was kind of rough.”
What Pangal learned was to block out the noise, keep his engineering team focused, and to continue to execute on his product development no matter what. “Every other day we would have the possibility that these guys may break up or these guys may not work together,” says Pangal.
There was also anxiety on the other side. “These companies were super nervous that they were relying on this small startup for a massive market,” says Pangal. As a result, each was trying to hedge their bets with a similar internal project or with other large partners. “Just in case CloudSimple doesn’t come along,” says Pangal, echoing the sentiment he knew the major providers were feeling. “As a result, we would always have a sword hanging over our heads.”
But it turns out that being small has advantages. While the big players were “analyzing and analyzing and analyzing and not creating a product,” says Pangal, his team was focused and nimble. “The best part about a startup,” he says, “is that you can execute and get the product done.”
That focus, however, doesn’t come by itself. It requires a strong management rudder. “From a management team’s perspective we made sure the team was not distracted on these competition issues,” says Pangal. “That was a key thing. Have confidence in your execution, have confidence in your product and the IP you’re creating. Just believe in that and keep executing. And then even when there are giants you can still survive.”
Juggling investor interests
There were other dependencies that needed Pangal’s attention. During Series A fundraising, CloudSimple had secured backing from Microsoft’s venture fund, M12. The software giant also kicked in a substantial amount in the next fundraising round, eight months later, helping Pangal make strategic early hires, among other things. “It was a very strong partnership,” he says.
The downside came when Pangal needed to raise a Series C round. “Then we ran into some issues,” he says. Because CloudSimple was dependent on its Microsoft partnership for this strategic service, and because Pangal’s work with Google had just begun, other investors were spooked.
“The VCs all looked at it and said, ‘Hey this is great, we know you guys will land a lot of customers, but we don’t see how Microsoft is not going to acquire you.’”
The right relationships
Having the right relationships at this moment helped. Pangal had worked with Navin on StorSimple, and the pair had a relationship going back a decade. Navin’s guidance was now crucial.
“One of the things that I got out of this moment was how critical it is to have somebody like Navin on the board,” says Pangal. “Because he’s one of those veteran VCs who doesn’t get flustered by these kinds of issues, he would tell me, ‘At the end of the day you guys have a great product, you have a great service. We’ll find the money.’”
The lesson Pangal took from that was that experience counts when picking an investment partner. “You want someone who has that confidence, but isn’t a micromanager,” says Pangal. “What I love about Navin is he lets you run your business and doesn’t interfere, but will always be there when you need help. As an entrepreneur I couldn’t be happier with that attitude.”
Finding a shared vision
When your startup is acquired by a large company, a hundred percent vision alignment is not always the case. Fortunately, says Pangal, Google and the people he works with there share his company’s vision. And Google has the investment power to see it through.
“They really want to get after the traditional workloads and bring those to the cloud,” says Pangal. “So, there is a vision match plus the investment we needed to achieve this vision. They were the right partner.” In the end, CloudSimple’s partnerships with multiple providers did give it leverage to get the best value for the company, its shareholders and employees.
With so many big tech players in the public cloud space, any startup wanting to work there will likely have to partner and work with one or more of them. “You need to be aware that a lot of enterprise infrastructure is moving there,” says Pangal. “So, if you can find products that can help the public cloud infrastructures, that go after new workloads, you can have a winner.”
However, he says, building out enterprise infrastructure is a matter of “getting out your shovels and digging,” says Pangal. “It’s hard work. But it pays.”