The Multi-Billion Dollar Tech Company That Started From A Couch
AppDynamics started life as one person’s dream on a San Francisco couch. In less than ten years, it was a multibillion-dollar business with customers all over the globe. This is the fascinating story of a small-town boy from India who dreamed of making it big in America. The route to the top was not an easy one, and the challenges for software engineer and Silicon Valley entrepreneur Jyoti Bansal started almost as soon as he landed in the United States. Bansal was born and raised in Rajasthan, northern India, and excelled in his studies, graduating with a computer science degree from the country's top engineering school in 1999. For as long as he can remember, he wanted to be an entrepreneur and dreamed of building companies that would leverage software solutions to make a difference. Fascinated by startups and business creation, he believed America was the best place to further his career and ambitions.
Coming to America
Bansal arrived in July 2000 on an H-1B visa, which allowed him to gain employment. He began working for startup companies but was eager to start and build his own enterprise. Strict immigration rules meant he couldn't. Individuals on H-1B visas are not permitted to start their own companies, so he had to wait seven years for his employment-based green card to come through. This was an incredibly frustrating time because Bansal had no control over his destiny and was aware daily of how his dreams were being thwarted: "Many times you have ‘aha’ moments, there's a big white space here, there's a big opportunity here, and I wanted to go after those opportunities," he later told an audience at the SaaStr Annual Conference 2017 in San Francisco. "And I just couldn't because of the visa status."
Genesis of a Multi-Billion Dollar Idea
Although his plans were in stasis, that didn't stop Bansal from dreaming and ideating. During this time, he hit upon his big idea. Convinced that the world would become ever more software-dependent, he realized there needed to be a technology solution to troubleshoot and fix the inevitable problems that would arise. He knew existing solutions were not up to the task and burning with a passion for remedying this he conceived AppDynamics, which monitors, manages and troubleshoots complex software performance issues. While holding down a full-time job at startup Wily Technology, he refined his innovative concept at night and on weekends. Once Bansal received his green card, he had the freedom to finally get going and started coding in earnest.
The next step was to secure funding for his new company, and Bansal couldn't have embarked on his pitching rounds at a worse time - the 2007/2008 global financial crisis. Rejection followed rejection, but it wasn't just because investors were becoming more prudent and slashing their investments. Bansal was a software engineer turned first-time entrepreneur who lacked business experience. However, far from being downcast by the continual closing of doors, he was inspired to up his game, making a point of asking why they didn't want to invest in his business. Some replied, and some didn't, but he learned from every interaction and failure. A pivotal turning point came when he was asked by one venture capitalist why he was still in his day job. This was a light bulb moment, and Bansal quit the next day to work fulltime on AppDynamics. Bansal was convinced of the merits of his idea. Convincing others involved changing his pitch. Initially, he used lots of technical jargon and spoke as any engineer would. Continuing along this path could have resulted in failure, but he developed his story to create a vision to excite investors. He focused on why the then performance monitoring and management solutions were not good enough, how not addressing this would affect every aspect of business and society reliant on software and how AppDynamics could provide the answer. He explained how this major untapped market was being overlooked and backed his talking points with stats.
Building the Team
After several months and following 20 rejections, Bansal received his first investment check. By April 2008, there was $5.5 million of Series A funding in the bank. Now it was full steam ahead, which meant conquering the next challenge. He needed employees, and he needed them quick because he was the only one.
He was after an excellent founding team, a group of talented individuals who would build the company. They not only had to be skilled and talented in their specialties, but they also had to love the uncertainty, risks and challenges that come with creating something new. He brought onboard friend and former Wily colleague Bhaskar Sunkara as AppDynamics' first CTO and then spent three months recruiting the rest of the team.
The next challenge to overcome was to find customers and define the product-market fit, developing the right kind of product that people will buy to make you money. Missteps here can mean curtains. It is where many early-stage companies fail and why there is such a high mortality rate among startups.
This was a very difficult time for Bansal and AppDynamics. Not only was it the Great Recession, but the fledgling entrepreneur realized he had to make several pragmatic changes to his original proposition if his concept were to have any chance of success.
This involved talking to many potential customers and rethinking initial assumptions. For example, one of the original ideas was that customers' software would run through the AppDynamics platform. But Bansal was repeatedly told it was too ambitious a change as it would take companies years to migrate their software.
"I thought we could move things fast into our platform, so it was very clear I was wrong," Bansal said at a Venture Atlanta fireside chat in 2019. "I had a second thesis that everything would move into the cloud, so let's build the software application running in the cloud. It turns out we were ten years early on that thesis. We were right, but very early."
What followed was approximately 15 months of course correction, pivoting and redesigning to find the right product-market fit for AppDynamics. With adjustments made, the product was publicly launched in 2010. Bansal's target customers were large internet companies, and he connected to key executives directly through LinkedIn and followed up with emails about how AppDynamics could help their businesses. At first, there was a perception problem. People didn't believe it could do so much with a low-performance overhead (Bansal and his founding team had set a target of two percent overhead). To combat the credibility issue, they launched a free and smaller-scale version of their product called AppDynamics Lite. There was another fly in the ointment at this time. AppDynamics was written in Java, which wasn't suitable for all customers. So, they worked on building their product for every programming language. Success quickly followed.
Their first paying customer a was voice recognition startup called Yap (now a part of Amazon). Netflix, Priceline and Electronics were next.
AppDynamics was now going places, but success brought its own set of challenges. In the space of about four and a half years, the company went from 40 employees to about 700. During this time, sales bookings grew from $2million to about $300 million. This was a phenomenal achievement and a fantastic reward for all the hard work and sleepless nights, but hypergrowth such as this can be a double-edged sword. If not managed correctly, it can result in burnout as people and resources are stretched to the limit and the brink of failure.
Bansal figured the key to dealing with the pace and scale of the growth would be to balance the number of details that need to be managed. Too much micromanaging of details and organizations can't keep up, but if there's too little, everything will crash. So he created the concept of Guide Rails. This involved coming up with the minimum number of questions everyone in the company should know the answers to so every employee is aligned and going in the right direction. Every three months Bansal and his management team would meet to thrash out these questions and then communicate them to the rest of the company.
Bansal was also mindful not to fall victim to one of the significant problems associated with hypergrowth, which is stagnation. As companies grow they risk not being able to innovate because of ingrained structures, internal politics and other factors. Recognizing they were slowing down on innovation, Bansal completely restructured the company with something he called Startups within Startups. For the different products they wanted to build and the different areas they wanted to go into, AppDynamics organized into six different startups. This created the innovation vigor of early-stage enterprises and their ability to be nimble.
AppDynamics went from strength to strength and continued on its rapid growth trajectory. In January 2017, the day before it was supposed to go public with a highly anticipated IPO, the company was acquired by Cisco for $3.7 billion. This was the largest private company acquisition in decades.
On paper, it looks like AppDynamics enjoyed a seamless ride, smoothly transitioning from one phase of growth to the next. But that masks what was going on behind the scenes to create a unicorn company. When Bansal started, he knew nothing about building and running a business. He learned on the job. There were wrong turns, challenges and mistakes but with perseverance and determination, and by pivoting and correcting course, Bansal succeeded beyond his wildest dreams.
He stepped down from his post as the company's chairman in 2017 and launched BIG Labs, a startup studio and Unusual Ventures, a venture capital fund. This serial entrepreneur is now in a position to help other startups and early-stage entrepreneurs make a difference and achieve their ambitious goals.