I’m not sure that management guru Stephen Covey is involved in software-defined networking (SDN) startups, but he may be coming soon. Before he offers his own advice for the best habits of highly effective SDN startups, let me give it a shot.
In researching the SDN market I’ve looked at dozens of SDN startups, with more launching every day. The latest craze is the Software-Defined WAN, which I’ll be writing more about in the coming weeks. These SDN startups are all at varied levels of the startup lifecycle — from slideware to revenue — with different levels of success.
Many of these startups will fail. Fewer will succeed. What are the characteristics of those that will make it? Michael Bushong, VP of marketing with Plexxi, recently offered in a guest post that the SDN slog is going to be harder than many imagine. He says the companies that succeed in the market are the ones that gain real-world traction with focused use cases. Can’t argue with that.
In a market with the potential for high levels of marketing hocus locus, it’s easy to get lost. Let’s take a look at some of the habits of the most effective SDN startups. Here are a few characteristics of the leaders:
Know Where You Fit In. The aforementioned point by Bushong is correct. Focus on a specific niche and customer use case. Take a look at the diagram below. This is the new landscape of SDN as we know it — a hodgepodge of new technologies ranging from controllers to network-specific flavors of the Linux OS. What are you producing? One way to look at this diagram is that there will be best-of-breed players in each area, and the strongest will win that battle. Take a look at Cumulus Networks, which topped out at #1 on our list in my report, “SDN Revolution: An Ecosystem Report.” It does one thing and one thing very well: It makes a network-optimized Linux OS. Focus is crucial.
Develop Great Partners. The SDN startups at the head of the pack have the best partners. Being a startup is tough sledding. Not only do you have to raise capital, develop a product, and have a marketing story — you need a channel. It’s nearly impossible to build a channel on your own. My nomination for the best channel developer is Pluribus Networks. Take a look at its roster of partners: Oracle, Tibco Software, and Super Micro. If you get the product right, that’s one thing. But you also need to build a channel, and no startup can do that alone.
Lean and Mean Marketing. As somebody who does some marketing consulting, I can attest to the fact that these startups have tight budgets. Or maybe I should say — their boards and investors don’t like them to spend a lot of money. Of course, that doesn’t mean they don’t spend anything: You have to market strategically. My nomination for company with an example of lean and mean marketing? Plexxi. It’s obvious that Plexxi is not spending a ton of money on marketing — there are no ads in glossy magazines — but it is targeted. It’s got an active Twitter feed, and a steady stream of quality blogs on SDN topics. There are also the famous Plexxi YouTube videos, in which people sometimes appear upside-down. I should also point out, of course, Plexxi is smart enough to support this community, SDNCentral.
Take the Slow and Steady Route. Yes, this is linked to the prior marketing habit, but it involves a wider mindset. Not only should your marketing be lean and scrappy, but you should meter your overall approach, including being skeptical of juiced-up VCs that want to hand you tens of millions and have you hit the gas pedal hard. Some of the more well-funded players in SDN, such as Big Switch, have been burned by visions that are too grandiose and broad. Big Switch, which has raised nearly $50M in funding but was forced to pull back and reorganize in 2013 — including bringing in a new CEO — may have hit the market a little too fast and too hard.
Other companies know their place and are sticking to a more practical plan. Scrappy startup Pica8 operates out of a tiny office in East Palo Alto. It markets a sub-$10,000 SDN switching kit, focusing on Webscale players including Chinese Web giant Baidu. The company has raised less than $10M, but word on the street is that it’s now in the hunt for a significant Series B, which is likely to happen this summer. VP of marketing Steve Garrison has told me that the company is cautious in methodical in its approach, believing that the SDN market may take longer to develop than the most aggressive plans forecast. That’s a sensible approach for any startup whose plan is to displace Cisco.
Know Your Exit When it Comes. As the SDN bubble builds, there are no doubt many investors that will be pushing some of these companies to go for spectacular $1B+ exits, the likes of Nicira or Arista Networks. But these types of liquidity events will be few and far between. The sweetspot will be in the $200-$500M payout, as SDN players become strategic elements of the large vendor portfolios. One of the more recent success stories in SDN startups is Tail-f, which is being acquired by Cisco for $175M. I picked Tail-f as a Top Ten player in my recent report and I think it’s likely that at least half of those Top Ten will be acquired for more than Tail-f. But some will need to take deals in the sub-$200M level, even if their investors want a bigger payout. Tail-f made the right decision.
Read more details about the SDN ecosystem in “SDN Revolution: An Ecosystem,” a comprehensive, 30-page industry review that includes detailed information about more 24 startups, the position of leading incumbents, and a ranking of the top companies. It is available now from the Rayno Report for $899.