Recently, I responded to a technology-industry acquisition with a tweet of congratulations to the founders for a job well done. Seemingly a fairly innocent missive, the tweet received a quick response from Puppet Labs CEO Luke Kanies. For those unaware of the company, Puppet Labs is all about creating solutions that help organizations manage their infrastructure. It, and other companies like it, have a notion of "recipes," through which infrastructure provision and management can be automated and made far more efficient. I've covered Puppet before, but I was more interested in having a conversation with Kanies about his view of the industry, and how he intends his company, long rumored a near-term IPO candidate, to buck the normal trends.
Kanies prefaced our conversation by stating a very stark opinion: that an acquisition is perhaps the best way for an under-performing startup to fail. His opinion stands beside a well-appreciated, but seldom articulated, understanding in the industry - that a significant number of occasions in which an acquisition is heralded as a win for both sides are no more than a soft landing for a business gone mad. Further, the reality is that most technology acquisitions are dismal failures, and that politics, silos, and ulterior motives within large companies mean that success from an acquisition is a relatively rare thing. An acquisition is, in Kanies's mind, a relatively good way to get rich, but the worst way to achieve anything. This from a guy who could likely sell his business today and end up with a big stash of cash, but who wants to explore another way and remain independent, even if it is within the context of being a public company.
Kanies suggests something rather unusual, at least when it comes to tech companies, and that is the idea that Puppet can become a public company, but still remain independent, focus on mid- to long-term opportunities, and have the latitude and freedom to do what is right on a multi-year basis, rather than chase quarterly earnings goals. This aim somewhat flies in the face of the status quo, where public company CEOs suffer perpetual whiplash as they're thrown around chasing short-term opportunities. Add to that the very real issues around activist investors demanding short-term returns, and you have a very solid reason why companies like Dell and BMC have taken themselves private recently.
In Kanies's mind, an IPO is the direct opposite of an exit. In response to my questions about whether he would feel pressured to focus primarily on quarterly earnings as CEO of a public company, Kanies had this to say:
"I don't agree with that. To an extent that is true, after all I'm making short-term decisions today and don't have the luxury of running an entirely long-term business. A move to the public markets will continue that. Leadership can shift to a quarterly focus, but that's not good leadership. The challenge of being a public company is to balance public perception in the short term from a focus on the long-term future. It will be harder with a public company than today, but not hugely different."
We then moved on to the very real topic of the future of orchestration and automation platforms in the context of growing adoption of containerization and micro-services. Kanies was hot on this and articulated that he sees no future in which there are fewer servers running fewer services that are less complex or critical. In the future, management is going to be increasingly important, and there will be an ongoing need for better management over time. While it would be easy to describe the situation as Puppet servicing traditional infrastructure approaches, and those approaches being rendered obsolete by new technologies, Kanies pointed out some realities of his trade. As he sees it, an absolute worst case is that Puppet can only build and sell management for traditional architecture. Even in that case, and assuming Puppet has no relevance to the new world of Docker and Micro-services, Kanies strongly articulated the reality - that Docker is nascent at best, and that even best-case scenarios only see it capturing single-digit percentages of the infrastructure market in the next few years. That leaves a massive amount of apparently legacy infrastructure to be serviced by Puppet and its ilk.
Kanies pulled no punches; he is laser-focused on people who can pay them money. Yes, they're investing in building support for Docker into what they do, but they want to succeed in the world generally, not just around the Docker (or even the container) movement. To wrap some numbers around it, Kanies said:
"I can't generate $100 million in revenue from Docker, it's still very small. I'm focused on managing customers' real requirement, of which Docker-related tasks are only a small part. Yes, I'm paranoid about Docker, and watching it closely, but not to the point of thinking that it will disrupt traditional infrastructure approached overnight."
Finally, Kanies chose to slaughter a few sacred cows with a critique of the trendy, but in his view flawed, vision that developers are the new kingmakers. As Kanies sees it, it might be trendy to claim that developers might be the new kingmakers, but many of those developers still don't write the paychecks. Puppet focuses on the people who matter, the people who make enterprise buying decisions, and who plot an overall direction for their organizations.
The final question is one which will only be answered in the fullness of time. Can a boring, solid, steady company be a successfully listed technology company? Kanies pointed to some structural changes he's been seeing in the market. While private investors are all about growth at most costs, public investors have changed their tune of late. Before the Box IPO, they had no real view to profitability, but since the IPO people have begun thinking about it. Being public is about viability and sustainability. If the market demands that every company grows without check, there will be failures, as companies cannot support that growth. The market doesn't know how to deal with those things, but if Kanies has his way, he's going to show them how.
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