20VC Why You Should Not Always Listen To Your Investors, The Pros and Cons of Strategic Investors & How To Approach Operational Efficiency with Scaling with Florian Leibert, Founder & CEO @ Mesosphere

In this episode of 20 Minutes VC, host Harry Stebbings interviews Florian Leibert, founder and CEO of Mesosphere, a leading company in the infrastructure space offering a flexible platform for containerized, data-intensive applications, with significant funding from prominent VC firms and strategic investors like Microsoft and Hewlett Packard. Florian shares his journey from working at Twitter and Airbnb to founding Mesosphere, emphasizing the importance of ignoring investors' advice when it doesn't align with the company's product vision, particularly when Mesosphere decided against a SaaS model despite investor pressure. He also discusses the benefits and challenges of strategic investments, the necessity of establishing a robust sales process, and the importance of customer feedback in product development. Florian stresses the value of networking, especially in enterprise sales, and the critical role sales play in a company's success, debunking the myth that great products sell themselves.

• Florian Leibert is the founder and CEO of Mesosphere, a company in the infrastructure space.
• Mesosphere is a platform for containerized, data-intensive applications, trusted by companies like Yelp, Yammer, and Verizon.
• The company has raised over $120 million in funding from various investors, including venture capital firms and incumbents such as Microsoft and Hewlett Packard.
• Before founding Mesosphere, Florian worked at Twitter and Airbnb as a tech lead.
• Florian also has an angel investment portfolio with companies like Suitcase Company, Away, Cockroach Labs, Drift, and Buoyant.

"I'm thrilled to welcome a truly transformative company today in the infrastructure space with Florian Leibert, founder and CEO at Mesosphere, the most flexible platform for containerized, data-intensive applications."

This quote introduces Florian Leibert and his company, Mesosphere, highlighting its role in the infrastructure space and its flexibility for containerized, data-intensive applications.

• Naturebox offers an unlimited snacking program for offices, which is a highly desired employee perk.
• Naturebox focuses on healthy snacking with real simple ingredients and no artificial colors or sweeteners.
• Lisa is a company that sells mattresses online, with a focus on a premium foam mattress that includes memory foam and a cooling latex foam.
• Lisa has a social impact program where they donate a mattress to a shelter for every ten mattresses sold.

"Naturebox is the first ever unlimited snacking program for offices of all sizes, starting with just $12 per month per employee."

This quote explains Naturebox's business model and value proposition as an unlimited office snacking program.

"Lisa have done away with a terrible mattress showroom buying experience by creating this luxury premium foam mattress that's ordered completely online and ships for free to your doorstep."

This quote describes Lisa's approach to selling mattresses, emphasizing the convenience of online ordering and home delivery.

• Florian began his career in Germany with a degree in computer science.
• He moved to the U.S. and worked in adtech, specifically with Hadoop for large scale data processing.
• Florian was hired by Twitter, where he worked on graph algorithms for the "who to follow" feature and user search.
• He then moved to Airbnb, where he worked on search algorithms, infrastructure, and built out the data engineering team.
• Florian's experience solving scalability problems led him to found Mesosphere, aiming to make it easy to build and scale technology using open source resources.

"And at Twitter then I worked on some of the early who to follow. So the graph algorithms, trying to densify the graph and give users better recommendations."

This quote provides insight into Florian's work at Twitter, focusing on improving user recommendations through graph algorithms.

"And that's when we started Mesosphere. We wanted to really make it insanely easy to build and scale world changing technology."

This quote explains the motivation behind founding Mesosphere, emphasizing the goal to simplify the building and scaling of technology.

• Florian acknowledges the usefulness of investor advice but also suggests that sometimes founders should ignore it.
• An early investor during Mesosphere's seed round pushed for a SaaS model, which was not aligned with Mesosphere's product or target market.
• Mesosphere's product, an operating system for data centers and clouds, does not lend itself to a SaaS business model for their target market, the global 2000 and 8000 companies.
• These companies engage in long negotiation cycles and procurement processes, making a SaaS model impractical.

"Now, if you know what Mesosphere does, right, we basically are building an operating system for data centers and clouds."

This quote describes what Mesosphere does, highlighting the complexity and scale of their product, which contrasts with the typical SaaS model.

"So we wanted to really target the global 2000 and now really the global 8000 companies out there. And those companies won't be just putting in a credit card and ordering $500,000 worth of a product on our website."

This quote explains Mesosphere's target market and why a SaaS model is not suitable, given the size and procurement processes of these companies.## Communication with Investors

• Start-up founders need to balance investor advice with their own vision for the company.
• Founders may acknowledge investor suggestions but ultimately choose a different path.
• Clear and respectful communication is key when diverging from investor advice.
• Demonstrating early success with clients can validate the chosen strategy to investors.

"So the way that we communicated this was, I mean, we of course had the conversation initially like, hey, should we build a SaaS business? [...] And what we ended up doing is we ended up just saying, look, this is great advice. Let us get back to you. And in a couple of months later, we are like, look, this is not the route we decided to go down."

This quote shows how the founders initially considered the investor's advice, then took time to decide and later communicated their decision to pursue a different direction, underlining the importance of thoughtful and strategic communication with investors.

• Preference for receiving advice varies based on the company's stage and context.
• One-on-one settings are favored for more honest and detailed discussions on challenging issues.
• Larger group settings can make it difficult to delve into complex topics.

"I think it depends on the stage, but I think usually I'm a big fan of one on one advice because then you can have a much more honest conversation about everything."

Florian Leibert expresses a preference for one-on-one advice, highlighting that it allows for more candid and comprehensive conversations, which can be beneficial for addressing complex issues.

• Strategic investors can offer significant introductions and customer connections.
• They may integrate the start-up's product into their sales channels, reducing sales costs.
• The presence of strategic investors can be an endorsement, aiding in business development.

"So the great thing about strategics is that especially in our space, they can really help you with introductions to customers."

Florian Leibert points out the advantages of having strategic investors, such as their ability to facilitate introductions to potential customers and integrate products into existing sales channels, which can be a huge benefit for start-ups.

• Exclusivity fears may arise when a strategic investor resells a start-up's product.
• Large strategic investors may not always be neutral, potentially impacting relationships with other companies.

"I don't think necessarily because we deal with HPE, but we also have a really good relationship with Dell EMC."

Florian Leibert discusses concerns about exclusivity and neutrality, noting that strategic relationships do not necessarily lead to exclusivity and that it is possible to maintain good relationships with multiple large companies.

• Large companies can be a time sink, requiring clear goals for the partnership.
• Start-ups must be wary of becoming overly reliant on a single internal champion.
• It's essential to build relationships with multiple stakeholders to avoid single points of failure.

"So I think when you deal with a really large company that has probably more svps and vps than you have employees, it can be a huge time sink."

This quote emphasizes the potential for inefficiency when partnering with large strategic investors due to their size and complexity, stressing the importance of setting clear objectives and broadening internal relationships.

• Early interactions with strategic investors can indicate the potential for a strong partnership.
• Quick resolution of negotiation terms can show a strategic's commitment to the partnership.
• It's crucial to have the resources, like a business development team, to manage these relationships effectively.

"I think you will realize how strongly they are leaning in, and that will give you an indication of how good of a partner they will be in the end."

Florian Leibert suggests that the eagerness and efficiency of strategic investors during initial negotiations can be telling of the future success of the partnership, highlighting the importance of gauging commitment levels early on.

• The right timing for strategic investment is crucial; it often makes sense in later funding rounds.
• Companies need to be mature enough to dedicate resources to managing strategic partnerships.
• Series C financing or later may be appropriate for engaging strategics.

"Yeah. So for us, the strategics came in during our series C financing, and I would even say I think it was just the right time."

Florian Leibert shares his experience with strategic investment timing, indicating that Series C financing was the right stage for his company to engage with strategic investors, as they had the necessary resources to manage these relationships.

• There's a debate on whether strategic investment is a precursor to mergers and acquisitions.
• Start-ups may view strategic partnerships primarily as a means to boost sales rather than a path to M&A.

"So we don't necessarily see that that's slow motion. M a we really believe that in our line of business, the strategics can really help us selling more of our product."

Florian Leibert challenges the notion that strategic investment is a step towards slow-motion M&A, instead focusing on the immediate benefits of increased sales through strategic partnerships.## Strategic Investor Selection

• Tari Stebbings clarifies that their strategic investors were not chosen with the expectation that those companies would necessarily acquire them.
• Strategic investors are selected for reasons beyond potential acquisition.

"It's certainly not the case that we picked our strategic investors because those were the companies we thought are necessarily going to acquire us."

This quote emphasizes that the choice of strategic investors was not driven by the prospect of being acquired by those companies, indicating other criteria were considered more important in the selection process.

• Florian Leibert discusses the critical role of networking in enterprise sales.
• Establishing relationships is crucial for large deals.
• The co-founders incorporate customer feedback into the product development.
• Time spent with customers helps understand their needs and willingness to pay.

"It's super important to be connected and to get introductions."

Florian highlights the necessity of building a network to gain introductions and establish connections, especially in enterprise sales where personal relationships are key.

"We spend an enormous amount on product together... we spend a lot of time taking the customer feedback from our network that we have and put it back into the product."

The quote reveals the co-founders' commitment to product development and their process of integrating customer feedback from their network into the product.

• Florian Leibert explains that product improvement is a numbers game.
• It involves identifying common pain points among many customers.
• The goal is to cluster similar use cases and make informed decisions on product development.

"I think it's a numbers game... you have to talk to a lot of customers, and then you see what they all converge on."

Florian describes the process of collecting feedback from a large number of customers to identify common issues that need addressing in the product.

• Florian Leibert discusses the importance of finding the right salespeople for their business.
• The sales team should be expanded cautiously, ensuring each member is fully ramped before hiring more.
• Sales efficiency is crucial to control costs, especially in the early stages.

"For sales, you really need to find the right prototype for an account executive."

This quote highlights the importance of hiring salespeople who match the company's needs and have the right relationships and experience.

"You want to really build out your sales organization slowly and not just drop a bunch of sales executives in there when you haven't really figured out what your sales motion is."

Florian advises against rapid expansion of the sales team without a clear and successful sales strategy in place, emphasizing gradual growth.

• Florian Leibert expresses the benefits and drawbacks of non-paid pilots.
• Early non-paid pilots helped refine their product.
• Establishing clear success criteria with the customer is vital for pilot programs.

"So we did early on a couple of non paid pilots, and I think we learned a lot from them."

Florian acknowledges the value of early non-paid pilots in product development, despite the lack of immediate financial gain.

"It's super important when you go into a pilot, paid or unpaid, actually, to identify the success criteria."

The quote stresses the importance of setting clear success criteria for pilot programs to ensure they lead to sales and are not a waste of time.## Operational Efficiency at Scale

• Scaling a company necessitates increased importance of processes across all departments, not just sales.
• Processes in product and engineering become critical as a company grows.
• Initially, companies may operate without strict processes, but as they expand, documenting user stories and breaking down tasks is vital.
• Efficient processes are key to transforming from an early-stage to a later-stage company.

"So I think as you scale a company, process becomes much more important. And I think that happens across all organizations, not just sales."

This quote emphasizes the universal importance of process implementation as a company grows, highlighting that it's not limited to sales but extends to all facets of the organization.

• In the early stages, companies may start with an idea and immediately begin implementation.
• As companies mature, it's necessary to write down user stories, translate them into tasks, and break them down into manageable Jira tickets.
• The shift from a less structured approach to a detailed process-oriented strategy is a significant transformation.

"Now that's great and that's great in the early phases, but I think later on what you really need to do is you need to write all of your user stories down."

This quote reflects on the evolution from an informal approach to a structured, process-driven method where detailed planning and documentation become essential for efficiency and scalability.

• Florian's favorite book is "The Alchemist" by Paulo Coelho, which he finds inspirational for its message of perseverance and learning through life's journey.
• He believes that the concept of cloud computing is evolving, with a significant shift towards edge computing due to the explosion of data generation.
• Florian values his experiences at Airbnb and Twitter, emphasizing the importance of seizing opportunities over fixating on job titles.
• For leisure reading, Florian enjoys "Seeking Alpha" as it allows him to learn about finance, which is not directly related to his day job.
• He has shifted his perspective on the importance of sales in a company, recognizing it as equally important as building a great product.

"It was an awesome book that I actually read right before starting mesosphere, and I think this book really outlines that on your journey a lot of things go wrong, but you'll learn a lot of great things on the way."

The quote highlights why "The Alchemist" is Florian's favorite book, drawing parallels between the book's message and the entrepreneurial journey he embarked on with mesosphere.

• Florian doesn't categorize the end of cloud computing as simply true or false.
• He observes a trend where computing is not only moving to the cloud but also to the edge due to massive data growth.
• The need for edge computing arises in scenarios with connected cars and cruise ships, where data cannot solely rely on centralized systems.

"So we're seeing a lot of companies coming to us and saying, like, look, we believe that there's a lot of compute that's moving to the cloud, but also a lot of computing has to happen at the edge."

This quote captures the current trend in the tech industry, where both cloud and edge computing are becoming necessary to handle the increasing data demands of modern technology.

• Florian believes that working at companies in hyperscale mode offers immense learning opportunities.
• He suggests that individuals should focus on the learning experience and contributions rather than on job titles.

"And I think you learn so much at companies that go through this hyperscale mode and you get so many opportunities to contribute that, yeah, you shouldn't be focused on title."

The quote reflects Florian's perspective on professional growth, emphasizing the value of experiences gained at rapidly scaling companies over the prestige of job titles.

• Florian enjoys reading "Seeking Alpha" as it provides insights into finance, a topic outside of his professional expertise.
• He has revised his understanding of the role of sales within a company, acknowledging its critical importance alongside product development.

"I love seeking Alpha because it doesn't really have that much to do with my day job, so I love to learn about finance."

This quote reveals Florian's personal interest in finance and his habit of reading content unrelated to his primary work to broaden his knowledge.

• Mesosphere aims to facilitate the building and scaling of transformative technology.
• The company is focused on assisting other companies in their digital transformation journeys.
• Florian references Marc Andreessen's statement that every company must become a software company, aligning with Mesosphere's mission.

"We really want to execute on our mission to make it insanely easy to build and scale world changing technology."

The quote outlines Mesosphere's future goals, highlighting their commitment to simplifying the process for companies to innovate and scale in the digital era.

• Naturebox offers an unlimited snacking program for offices, considered a significant perk by employees.
• Naturebox focuses on healthy snacking options with simple ingredients and no artificial additives.
• Lisa provides a premium foam mattress ordered online, contributing to good health through better sleep.
• Lisa's business model includes social responsibility, donating one mattress for every ten sold.

"Naturebox is the first ever unlimited snacking program for offices of all sizes."

This quote discusses the Naturebox service, emphasizing its role in enhancing workplace perks through healthy snacking options.

"Lisa have done away with a terrible mattress showroom buying experience by creating this luxury premium foam mattress that's ordered completely online."

The quote introduces Lisa's innovative approach to mattress shopping, offering convenience and quality while also engaging in charitable activities.