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Interview with Niel Robertson

Posted on February 15, 2007
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Entrepreneur Niel Robertson talks about what he looks for in a market and the importance of market timing to the success of a company. The 30-year-old MIT grad has an uncanny ability to anticipate market trends swirling around enterprise application management. As co-founder and CTO of Newmerix (http://www.newmerix.com), Niel has defined a new market opportunity around packaged applications. Previously, Niel was co-founder and CTO of Service Metrics, VP of Research at Exodus Communications, and since August 2001, he has served as CTO in Residence at Mobius Venture Capital. As a veteran and advisor of venture-backed startups, Niel focuses on technology companies where new product research, software development, technical marketing and external evangelism are effective tools for success.

Bradley: Tell us a little about your background.

Robertson: I have been building software companies for about ten years now. For some reason I have always gravitated towards enterprise application management – building software to help companies manage the applications that run their business. In the 90s, I co-founded my first company, Service Metrics. We were focused on helping enterprises get more out of their web sites by better managing their web site performance. At that time, every large company (and some small ones) was scrambling to build a sales channel through the web. Hordes of end users and potential customers were jumping onto the Internet for the first time, using 14.4Kbps or 28.8Kbps modems. Surfing the web on a 28.8 modem was a painful experience, and when you threw a user into a buying process (for example, buying a book on Amazon.com), you realized how very sensitive a user was to the speed of the web site. Service Metrics measured the speed at which a user could perform the most important transactions on a website from the end-user’s perspective. With the data we collected, Service Metrics could identify and dissect the largest bottlenecks to performance and help our customers spend their money intelligently to speed things up. It was exactly what the market needed and after only 18 months, we sold the company to Exodus, which at the time was the world’s largest hosting company.

Bradley: What did that experience teach you about market timing?

Robertson: I’ll admit I got lucky with the timing of Service Metrics. In hindsight, though I learned a lot about market timing – and ensuring the market is ready for a good idea. I would guess that as many good ideas have failed because they were too early to market as too late. I have four guidelines I jokingly call my “four rules of market timing”. I try to apply them to any business idea I am considering.

My first rule is called “New dog, old tricks”. This happens when companies invest in new technology platforms to essentially do what they are already doing. This might be customer support, sales channels, or monitoring their business. Inevitably, they forget how much work and technology it took to get the old stuff working right and always skimp on this piece of the puzzle out of the gates. Essentially, Service Metrics helped people bring measurement of the customer shopping experience back to companies now selling on the web.

The second rule would be “Throwing good money after bad”. This happens over and over in information technology shops. So many times, a company commits to a certain technology choice and then scrimps on the initial implementation or poorly scopes the project. In either case they have become wed to it. At this point in time their only choice is to throw more money (and for me – new technology) to help get what they originally wanted.

The third rule is the “Earthquake” rule. This states that the pain of a problem rarely comes at once – it usually comes in waves. As with real earthquakes, you either get the big one first and then some small aftershocks or you get a few tremors first and then the big one. When the small tremors come first you find companies building their own solutions or cobbling together whatever they have lying around to solve the problem. If the earthquake comes first you’re too late to the market. When we started Service Metrics we found a number of large companies actually trying to build a network of monitoring agents just to get some data. This was a great sign as it was not a sustainable strategy given the complexity of the problem.

The last rule I call the “Hokey Pokey”. You’ve heard the song, it goes like this: “You put your left leg in, you put your left leg out” etc. etc. The point being companies inevitably decide to bring things in house or outsource them over and over again. The theory is that this is going to save a lot of money and solve all their problems. The problem is companies essentially exchange the challenge of managing the technology for the challenge of managing the service providers - or vice versa. When everyone started outsourcing web site hosting, Service Metrics grew dramatically by giving web site owners data about how well their hosting providers were performing.

So these are the rules. I always reserve the right to break them, but they have worked well for me.

Bradley: Have you ever ignored your rules?

Robertson: I was involved once (on the board) with an outsourced network operations center provider – trying to get people to hand over their management of network operations. The problem was that we were trying to force the Hokey Pokey rule instead of capitalizing on a natural shift in the market. Clearly, some people have been successful at causing this shift, but in that situation none of the other rules applied. Companies were not going through a technology shift in terms of managing their network operations. They had made their big investments in HP OpenView or CA and, generally speaking, they were working fine. And there was no earthquake looming. So, they were essentially 0 for 4. The company, despite the best efforts of its management just could not find a market.

Bradley: How does your latest venture fit your four rules?

Robertson: When I was starting a new company, that eventually became Newmerix (http://www.newmerix.com), I wanted to consciously build a business case that fit these rules. After some tiny missteps, I stumbled across the packaged application market. Packaged applications are big software suites like PeopleSoft (now Oracle), Siebel, SAP, Etc. Companies buy these suites and attempt to run their whole business on them instead writing their own software. Two things really opened my eyes when I looked at the packaged application market: the immense amount of money that went into getting these packaged applications up and running, and the rudimentary technologies available for most companies to manage them .

So, I started to consider my four rules. “New dog, old tricks” was clearly applicable. Essentially, when people bought these applications they were replacing custom applications they had written themselves. The promise of moving to a packaged application was no more development, only configuration. But in the end, every business is so unique that companies found they had replaced pure custom development with a new form of software development focused on customizing these packaged applications. However, all the advanced technology and process and methodology developed over the course of 10 years for custom development just wasn’t available in the packaged application framework. There are many, many publicly available horror stories of hundreds of millions of dollars wasted trying to get these applications to essentially do what the company already had working with their custom developed software.

Clearly “Good money after bad” was present as well since companies had taken a major bet on these applications (many were forced by Y2K to replace old Cobol programs) and now they were held hostage by this new technology set.

As we started to look at what management software people were using for these applications, we saw rule number three emerge – tremors before the earthquake. Companies were cobbling together whatever technology they had lying around in their custom development environments and trying to get it to work with the packaged application architecture–not a sustainable strategy. As a side note, the earthquake part of that rule really hit with Sarbanes-Oxley last year when the government basically said to IT departments “prove you have your act together in IT”.

The last rule, the Hokey Pokey was actually the most important for us. When companies first implemented these applications they were usually installed, at great expense, by a specialized systems integrator. When the bubble burst and $400/hr consultants were no longer a viable IT staffing strategy, almost every major company brought ownership of these applications “in-house” with internal staff to manage them. This brought the problems of managing these applications right to the company’s doorsteps, and provided us a direct avenue to sell to the enterprise. So we set out to build Newmerix, the first change management suite for packaged applications, about two and a half years ago.

Bradley: Have the four rules worked?

Well fortunately we started a little over two years ago, building the core suite of products based on what we saw happening in the market. We anticipated a number of earthquakes, Sarbanes-Oxley was one of them. Additionally, the consolidation of PeopleSoft/JD Edwards and then PeopleSoft/Oracle have been additional market earthquakes that highlight the pain of packaged application management. In the longer term, we are encouraged because we are seeing the next wave of the four rules. All of the major packaged application vendors are shifting to an “Application Operating System” strategy. In this model they want to provide all the layers to deliver all of your applications. This shift is the next “new dog” companies are grappling with – and we’re currently the only company with a suite of products designed for the packaged application architecture. We also see an emerging market for outsourcing the development and maintenance of packaged applications so we expect to take advantage of the need for good management tools if these mission critical applications to go outside the enterprise. All in all I would say, yes, the four rules have been an incredibly successful guide for our business and continue to be so.

 

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