GameChangers / Entrepreneur Journey

How the Rancher No-Drama Team Quietly Built a Kubernetes Leader

The keep-it-simple principles of Rancher Labs’ founders led to a fast rise and a successful exit.

Mar 24, 2021

Mar 24, 2021

For the five years Mayfield partner Ursheet Parikh sat on Rancher Labs’ board of directors — from Mayfield’s A round investment in 2014 to the sale of the company in 2020 for over $600 million — Rancher never missed a quarterly financial target, despite two major pivots and one pandemic. Even the board meetings went smoothly, says Parikh, never exceeding the allotted two hours.

“Working with Rancher has been a delight from day one,” says Ursheet. “It’s the lowest-drama company I’ve ever seen.”

Sheng Liang, co-founder and former CEO, credits a “keep-it-simple” philosophy. “We hit our goals by laying out a plan we think we can achieve, and then finding a way to meet it. That’s it,” says Sheng, who is now president of engineering and innovation for SUSE, the German open-source giant that acquired Rancher last December.

Of course, keeping things simple doesn’t just happen. It requires some key ingredients. First among them is trust, so that executives, employees, and directors know they can rely on each other to do what they say they will. Another is transparency, so that everyone can pull together to address challenges as quickly as possible. And it requires a particular kind of pragmatism.

“To be a successful entrepreneur, you have to be ambitious and optimistic. You have to believe you can topple VMware, or Amazon,” says Sheng. “But many companies get carried away and don’t back it up with a dose of reality.”

Sheng, an engineer who had a key role in the development of Java while at Sun Microsystems in the 1990s, eschews many practices that complicate life for Silicon Valley entrepreneurs. For example, Rancher never had different sales targets for the board, the company, and the sales team. There was no sandbagged “board plan” to keep Sheng looking good for directors, and no unrealistic “stretch” plan promising soaring bonuses to salespeople who hit higher sales quotas. Instead, every salesperson at Rancher had one unchanging quota, based on the only plan that mattered: the real one.

“If you can grow 100% a year, there’s no reason to go for 120%,” says Sheng. “Heck, if you just grow at 50% for another 20 years, you’re the next Microsoft.”

Seeing the opportunity

Given its business, Rancher had little room for shenanigans. The company was founded in 2014, when companies were flocking to a new technology called “containers,” which let them deploy their software in tiny chunks that could be run on any kind of infrastructure, from a mega-data center to the server in the closet.

Rancher’s founders immediately understood the implications. Sheng, Shannon Williams, and William Chan had founded in 2008. It sold software for anyone that hoped to create their own cloud platform rather than use AWS or Azure.

By the time they started Rancher (Darren Shepherd, a former customer, was the fourth co-founder), very few people would think of competing with AWS, Microsoft, or Google. But while these companies offered their own container services, Rancher’s founders foresaw a day when companies would need “multi-cloud” tools that would work on all of the main platforms — say, to be able to shift to another cloud service or company-owned data center, if a cloud had an outage.

For the first 18 months, the team struggled with how to help customers trying to run software in such a heterogeneous world. A technology called Docker had emerged as the basic container technology. If Docker containers were like rail cars of code, customers still needed a system to organize them into trains, and to manage those trains as they moved onto different gauge rails.

Rancher built a Docker-based system, just in time for it to be rendered irrelevant by Kubernetes, an open-source technology created by Google that quickly became the standard container framework. Suddenly, the tiny company faced competition from a slew of well-funded startups offering their own implementations, or “distros,” of Kubernetes. Worse, the cloud giants themselves threw in Kubernetes management as a freebie to get companies to use their cloud offerings.

It was a scary time, says Shannon. But the level of trust was such that no one left. “We had so much confidence in each other that we didn’t face the self-doubt that brings down a lot of startups,” says Shannon. “We were able to move through a risky time pretty comfortably.”

Forging a new path forward

The easiest path would have been to crank out their own distro, with extra features or some other small advantage. But Sheng was not willing to bet the company that Rancher could do a better version of free.

“If you have an ounce of honesty, you’d have to realize that was a hopeless business model,” he says. “It was obvious to us, but I can tell you it wasn’t obvious to a lot of our competitors, and still isn’t.”

Instead, the team bore down on finding unaddressed niches in the Kubernetes ecosystem. While many distros focused on running software on a particular public cloud, Rancher’s namesake product helped customers easily move containers between competing clouds, but also on other kinds of infrastructure, such as legacy, company-owned data centers. In 2019, it added a popular miniaturized Kubernetes distro called k3s that can be squeezed into IoT devices such as wind turbines and drones, which have very limited compute capacity.

As sales rose, the founders made sure to keep their focus on market realities. At one critical juncture, Sheng and Shannon, who was Rancher’s president before the acquisition, decided to write down a list of all the reasons a customer would not buy Rancher’s products — from lack of a feature, to the fact that the company was simply too small. While many startups focus only on making their products as good as possible, “We’ve learned that the why nots are often more important than the whys,” says Shannon. Rancher’s development effort therefore focuses as much on eliminating “why-nots” as creating “whys.”

By early 2020, Rancher had carved out a valuable corner of the booming Kubernetes ecosystem, and done so quickly. Sheng loves to point out that rival Red Hat had a Kubernetes distro before Rancher was even founded, but didn’t come out with a Rancher-like product until 2020. “We went from three years behind Red Hat to two years ahead.”

When SUSE approached the company about an acquisition in July, the Kubernetes market was heating up. While the pandemic had hurt overall tech spending, it had also caused many companies to accelerate their adoption of the cloud as a way to save money and accomplish their digital transformation goals. While Rancher had grown to 250 people, Shannon figured SUSE’s much larger sales and engineering teams meant Rancher could quickly reach ten times more customers than it could on its own.

“The market was developing much quicker than expected, and by combining forces with SUSE we’ll be able to build the undisputed market leader in Kubernetes,” says Sheng. “Ursheet supported us staying independent but also realized that the exit could help us realize our vision and that it made sense for our stakeholders and employees.” The SUSE offer was one of many, and the company’s value had more than doubled by the final bid.

Read also: Ursheet Parikh’s cradle-to-exit role at Rancher Labs

“We’ll never know what might have happened otherwise,” says Sheng, “but we probably did the right thing.”

Again, no drama.