A startup led by Microsoft's chairman is on track to earn $100 million
For decades big companies have been using expensive network management tools like HP OpenView or IBM Tivoli, or CA Spectrum to watch such apps. Those products do a good job of watching the hardware that a company owns and diagnosing problems with that.
But in today's modern data centers, IT pros are are increasingly turning to cloud computing to host at least some of their apps. It's a trend called "hybrid" computing where the app lives in the data center some of the time, and moves the cloud some of the time, maybe to handle in a spike in seasonal usage, or other such reasons.
Enter Virtual Instruments, a started up founded in 2008. Its tech can watch an app, and the hardware that runs it, when it's in a company's datacenter, when it's in a virtual machine (using the kind of software that VMware makes), and even when it leaves the data center and lives in the cloud. Better still, the app pays for itself because it helps a company buy exactly the right amount of hardware they need - not more, not less, says VI's CEO John Thompson.
An $8 to $12 billion market
That's a big difference and a new thing. Historically, IT departments would figure out what they need, then buy 20 percent more to give them a buffer for if an app goes crazy with usage. Saving companies that 20% is huge for them, Thompson says.
Virtual Instruments doesn't directly compete with the old fashioned tools like HP OpenView, but is used with them. In fact, Thompson says that HP is a customer.
Nor does it compete with the AppDynamics or the New Relics of the world. Those are more focused on watching the software itself, not so much the machines that run it, Thompson says.
And that means that Virtual Instruments is alone in a market that is growing like mad, he says.
"We've got 370 or so customers. We've got 50 or 60 of the Fortune 500. We have 270 or employees and we'll grow [employees by] 30 to 35 percent this year," Thompson tells us. "I am convinced that this a market that will be $8 billion to $12 billion dollars TAM [total annual market], and it will grow at about a 15 to 20 % growth rate, compounded."
2015 is shaping up to be a stellar year for VI, too, he tells us. It's on track to do $100 million in revenue - and that's revenue, not "bookings" meaning actual dollars collected, not dollars under contract.
A famous CEO
The startup has another thing going for it. Thompson is a famous guy, currently the chairman of Microsoft and the former CEO of Symantec. Although his 10-year reign at Symantec wasn't perfect - the company is currently unrolling his signature $13.5 billion acquisition of Veritas - it was pretty darn good. Under him, Symantec grew from a $600 million anti-virus company to a $6 billion IT company when he retired from the job in 2009.
"My time at Symantec was a wonderful experience. We did a few things right and a few things not so right, but by the same token, the company went from a billion dollar market cap in 1999 to a peak of $23, $24 billion dollar market cap. So the investors, if they were along for the full ride, I think they did OK," he told Business Insider.
Removing the founder CEO
He wound up being the CEO of this startup almost by accident five years ago though one of those classic painful startup things: investors and the board removed the original founding CEO.
Thompson had invested in VI in its earliest days, and joined the board when he left Symantec. At that time, VI was about a year old and things were not going well. The company was burning through its capital, it "needed to sharpen our focus on where we were going to sell our products and services" and it needed to make its product affordable enough to attract more customers, he told us.
Thompson "stepped in" to try to come up with some solutions. "and we concluded as a board that we needed to make a leadership change. And I thought OK, well, no one else has raised their hand, so I'll run it for 90 to 120 days until we find a new CEO, and then we'll move on," he says.
As item CEO he went looking to raise capital. "I'm a very respectful guy of investors, I wouldn't dare ask someone to invest in the team and me and walk away, so here I am, still here."
The company has raised $76.5 million total from backers like Lightspeed and General Catalyst Partners with big rounds in 2010 and 2012 It's also taken on 10 million in debt financing in 2014, according to Crunchbase.
An uncomfortable conversation
He remembers having the uncomfortable talk that ousted the founding CEO. "We tried to be very respectful of what he had built, but also very determined about what we wanted to have happen here, and he could be a part of it, but not as a chief operating officer," he describes, "Our founding CEO stayed on the board for a year, and after about a year then he sailed off into the sunset."
Shedding a founding CEO can be brutal for a young startup. But Thompson says that not doing such a thing can be worse.
"If an individual isn't performing, then you should do something about it. If a firm isn't performing, invariably investors would do something about it. And I think when you are part of a team, people on the team know whether or not you or the team overall is performing well. You can't hide that from them," he says.
So if the board doesn't take action, they'll start to quit and the company will spiral down from there.
"We've had our ups and downs and clearly we've had to manage our way through that," he said. "I'd say we are at a very good place now."
Is the company on the IPO path? Maybe not, he admits.
"While in the early days, I got all caught up in the mantra of 'Oh, we're gonna IPO the company.' Candidly I've learned [better], that just goes to show you, old dog new tricks," he says. "Would I like to have the opportunity as a long-standing industry veteran to do an IPO? Absolutely."
However he says he's not even going to attempt it until the company is in great shape, with predictable growth, profits, and cash flow. "Then we can decide which liquidity option we want to pursue." Other options include selling to a bigger company or chugging along as a private company.
As for the 65-year-old Thompson, he plans to see it through "until the board gets fed up with me and my craziness," he jokes, "until then, they're stuck with me."