Episode 42 Opsware (with special guest Michel Feaster)

In episode 42 of the podcast Acquired, hosts Ben Gilbert and David Rosenthal, along with guest Michelle Feaster, dive into the 2007 acquisition of Opsware by HP. Michelle, the former Director of Product for HP's enterprise software division and current CEO of Usermind, shares her unique perspective from the HP side of the $1.6 billion deal. The episode touches on the strategic importance of the acquisition, the challenges of integrating Opsware into HP's existing sales channels, and the broader impact on the tech ecosystem, highlighting the talent and timing crucial to such high-stakes corporate maneuvers. The conversation also explores the pivotal role of key individuals in navigating market consolidations and the cultural assimilation of acquired companies within corporate giants.

• Acquired podcast includes grading acquisitions.
• Hosts Ben Gilbert and David Rosenthal provide grades, and guests may choose to grade.
• Episode 42 features Michelle Feaster, discussing the HP acquisition of Opsware in 2007.
• Michelle Feaster's background is highlighted.

"David and I will each give it a grade, and our guests can opt to either grade or not, especially since you were part of." "So Michelle today is the co-founder and CEO of Usermind, which is a unified customer engagement hub based in Seattle, and that she founded in 2013. But as Ben was alluding to a decade ago, before user mind, Michelle was working at the opposite end of the tech spectrum from a startup. She was the director of product for a division of Hewlett Packard's enterprise software business, where she led the acquisition of Ben Horowitz and Mark Andreessen's legendary company Opsware for $1.6 billion."

The quotes introduce the grading system for acquisitions used in the podcast and provide a brief background on the episode's guest, Michelle Feaster, highlighting her current role and her past involvement in the acquisition of Opsware by HP.

• Acquired has a Slack community with over 800 members for discussing M&A and tech news.
• Hosts appreciate reviews on Apple Podcasts to help grow the show.

"We have got a Slack and we are over 800 strong, that is at acquired FM on the sidebar. You can join us in the Slack and talk all things M&A tech news." "So you can help us grow the show by leaving a review on iTunes or, I'm sorry, on Apple Podcasts."

The quotes emphasize the importance of community engagement through Slack and the request for podcast reviews to support and expand the show's audience.

• Pilot is a company providing accounting, tax, and bookkeeping services.
• It is backed by Sequoia, Index, Stripe, and Jeff Bezos.
• Pilot focuses on outsourcing non-core activities for startups, aligning with Jeff Bezos's philosophy.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs." "Pilot both sets up and operates your company's entire financial stack."

The quotes describe the services offered by Pilot and its role in helping startups by managing their financial operations, allowing them to focus on their core business activities.

• Opsware was acquired by HP in 2007.
• Loudcloud, the precursor to Opsware, was founded in September 1999 by Mark Andreessen, Ben Horowitz, Tim Howes, and Sikh Ri.
• Loudcloud aimed to be an infrastructure as a service provider before AWS existed.

"Today we are covering the 2007 acquisition of Opsware by HP." "The company that ultimately became Opsware was founded as a different company called LoudCloud."

The quotes set the stage for the discussion on the acquisition of Opsware by HP and provide historical context about Loudcloud, which later pivoted to become Opsware.

• Loudcloud faced challenges as its startup customers went out of business post-tech bubble.
• The company pivoted to focus on Opsware, an internal tool for server management.
• Opsware addressed the need for managing complex IT infrastructures, especially with the rise of virtualization.

"So in August of 2002, as Michelle was alluding to, they sell that business to EDS, which is Ross Perot's software company." "They had this tool, we use it. We think it's great. Maybe other customers who have big data centers would want to use this."

The quotes explain the pivot from Loudcloud to Opsware, highlighting the sale of the original business and the focus on the Opsware tool, which helped manage data centers and became increasingly relevant due to the complexities introduced by virtualization.

• Michelle Feaster reflects on the difficulty of transitioning from internal tooling to a commercial product.
• The process required significant effort to make the software user-friendly for external customers.
• Opsware's understanding of the target persona and the evolving IT landscape contributed to its success.

"It's hard enough to build shrink wrap software that you're going to sell and install at a customer when you know you're going to do it." "Probably their biggest advantage was they were ahead in kind of the kind of software operation they were building."

The quotes from Michelle Feaster discuss the challenges faced by Opsware in turning internal tooling into a commercially viable product and the advantages they had by being ahead of their time in understanding the needs of IT operations.

• The discussion starts with considering how Opsware's tooling and intellectual property could be made accessible to users who aren't employees of the company.
• This point is not deeply discussed between Ben Gilbert and Michelle Feaster in their history.

"And odly enough, by the way, I never really talked to Ben about that part of their history." The quote indicates a lack of in-depth conversation between Ben Gilbert and Michelle Feaster about making Opsware's tools and IP accessible to non-employees, highlighting an area that was not explored.

• Ben Gilbert wrote a book exposing the myth of perfection in leadership and entrepreneurship.
• He emphasized the challenges of managing one's own psychology as a leader.
• His work has given other CEOs and leaders the permission to discuss the difficulties they face, which David Rosenthal refers to as "the struggle."

"Ben went and wrote a whole book about thank, I mean, I feel like he's the first not investor, but first CEO who essentially exposed the myth that it's all perfect all the time and kind of gave, I think, CEOs and leaders permission to talk about all of the hard things." The quote reflects on Ben Gilbert's contribution to changing the narrative around leadership by being open about the challenges, thus allowing other leaders to openly discuss their struggles.

• David Rosenthal worked at Mercury Interactive before it was acquired by HP.
• Mercury Interactive was involved in technical sales and had grown significantly during Rosenthal's tenure.
• The acquisition by HP occurred shortly before they acquired Opsware.
• The conversation touches on the sadness felt when HP acquired Mercury, indicating the emotional impact of such corporate changes.

"Sad day when HP acquired Mercury." This quote conveys the emotional response to the acquisition of Mercury Interactive by HP, reflecting on the impact of corporate takeovers on employees and company culture.

• Rosenthal describes his experience at Mercury, including his roles and the company's growth.
• He discusses the strategic fit between Mercury's offerings and what Opsware became, and how it aligned with HP's needs.
• The evolution of the market, with the rise of virtualization, is discussed as a key factor in the acquisition strategy.

"So what was Mercury and how did you come there? And what ended up being the fit that you saw between what Opsware became and Mercury?" The quote prompts a discussion on the strategic fit between Mercury Interactive and Opsware, and how that alignment played a role in the acquisition by HP.

• The decision-making process at HP involved assessing the market and HP's capabilities.
• Rosenthal used first principles to evaluate the situation, considering user needs and market trends.
• The consolidation of the market indicated that HP needed to either buy a leading company or exit the market.
• Rosenthal references Sun Tzu's philosophy of knowing oneself and the enemy to make victorious decisions.

"In a consolidated market, there is no path for a company like HP to build its way to victory. So you're only left with buy or exit the market." This quote summarizes the strategic decision faced by HP: to buy a leading company in a consolidated market or to exit the market, as building a competitive product from scratch was not viable.

• The process of acquiring Opsware involved discussions, consensus building, and due diligence.
• The choice between Opsware and Blade Logic was based on market leadership and product strategy.
• Opsware's comprehensive suite approach to data center automation was favored over Blade Logic's individual product strength.
• The integration process post-acquisition is hinted at as being challenging due to Opsware's experiences prior to joining HP.

"So you do end up buying it in July 2007 for $1.6 billion." This quote marks the culmination of the acquisition process, where HP purchased Opsware for $1.6 billion, a significant increase from its market cap five years prior.

• Following the decision to acquire, HP's corporate development team, led by Sandeep Joery, took over the process.
• The acquisition involved validating the importance of the deal with executives and sales teams.
• A thorough evaluation of Opsware and Blade Logic was conducted, with Opsware's strategy aligning with HP's vision for end-to-end service deployment.
• The quote from Michelle Feaster indicates the importance of understanding market dynamics and internal capabilities when making an acquisition decision.

"There was quite a lot of discussion that I wasn't part of, but where the head of software talked to his head of sales, and so kind of validating." This quote highlights the internal discussions and validations that take place within a company like HP when considering a significant acquisition like Opsware.

• Small acquisitions may not provide enough critical mass for successful integration.
• Strategic alignment is crucial in acquisitions, leading to preference for market leaders.
• Product efficiencies can be overlooked if strategic fit and market leadership are present.
• A fallback plan is essential, even when there is a clear preference for a particular acquisition target.

"So the two pieces for us on Opsware were, I guess, three, strategic alignment. They had the full suite, they were the market leader."

The quote highlights the importance of strategic alignment in acquisitions, emphasizing that Opsware was chosen due to its comprehensive offerings and market leadership position.

• Culture and people are critical in the post-acquisition phase.
• Management techniques like "Freaky Friday" can be used to integrate teams.
• Matching cultural values between the acquiring and acquired company can ease integration.
• Overcoming operational hurdles, such as IT restrictions, is part of the integration challenges.
• Having a liaison to absorb cultural friction can be beneficial.

"So Eric joined the ITSM team and took it over... And so Ben gave me product, and that was an incredible, so he calls it Freaky Friday, where he swaps the."

This quote explains the "Freaky Friday" management technique used during the integration, where leadership roles were swapped to foster better understanding and cooperation between teams.

• Integrating sales teams and expertise from the acquired company is challenging.
• Sales overlays are used to combine the expertise of specialized sales teams with existing sales forces.
• Training and enabling the sales organization to sell new products is a significant endeavor.
• Gaining market share during the integration process is crucial.

"But overlays are a hard thing to make work. And I feel like, and you say."

The quote discusses the difficulty of making sales overlays work effectively, which involves integrating the sales expertise of the acquired company with the existing sales teams.

• Big companies often struggle with innovation due to the inability to retain top talent and cultural mismatches.
• Anticipating and responding to market disruptions requires visionary leadership and courage.
• The rise of companies like Puppet and Chef represents the natural succession of Opsware's market.

"And so I think that's probably why it's HP and it is puppet, because it's much more than the software is the outcome of the people and the process the leadership used."

This quote reflects on why HP did not become a leader in the market following the acquisition of Opsware, emphasizing that people and leadership processes are critical to the outcome of software innovation.

• The categorization of an acquisition can be influenced by the level of integration and the independence of the acquired business.
• Rapid integration is often aimed at infusing new DNA into the acquiring company's culture.
• The overarching strategy of an acquisition can dictate how the integration is managed.

"So there was a larger transformation happening within HP software at the, they. The acquisition of Mercury was, I think, the first and then Opsware, and they did others after, you know, autonomy not being a great example, but there was a bunch, and there was an Uber strategy, an overarching strategy there that they were trying to transform the culture and transform the software organization."

The quote explains that the acquisition of Opsware was part of HP's larger transformation strategy to revamp its software organization's culture, which influenced the rapid integration approach.

• Exploring what could have happened if different decisions were made during the acquisition process.
• Considering the impact of not acquiring or building in the data center automation market on HP's position.

"I've been gone so long, it's a very hard question to. I mean, I guess if I had been there and the answer was, we didn't want to do Opsware or Blade, then I think I would have propose"

Although the speaker finds it difficult to speculate due to the passage of time, the quote suggests that not pursuing Opsware or Blade could have led to proposing alternative strategies within HP.

• Strategic decisions in business often involve significant shifts, such as reallocating resources or shutting down particular operations to focus on new opportunities.
• Timing is crucial in technology, both in consumer and enterprise sectors, and can significantly impact the success of products and companies.
• Loudcloud is cited as an example of a company that had the right product but suffered due to poor timing, similar to AWS before AWS became successful.
• Venture capital firm Sequoia conducted a study that highlighted timing as the most crucial factor for the quality of investment decisions.
• Management's role is to handle timing effectively, and pivoting at the right time can lead to success even after initial failures.
• Talent in technology is essential for managing timing and includes having a vision and the ability to navigate market timing.

"I would have proposed essentially shooting for the next product and taking that engineering team and building a converged automation and monitoring product with every engineer from the team, and basically give up the land for the current iteration and wait for the next disruption and bet that we'd be on time." This quote exemplifies a bold strategic decision to focus all resources on a new product in anticipation of market disruption, showcasing the importance of timing and the willingness to make significant changes for potential success.

"Loudcloud was 100% the right product. I mean, it was AWS before AWS. And AWS is one of the probably top three biggest and most important products in technology today. But the timing was heard." This quote highlights the critical role of timing in the success of technology products, using Loudcloud as an example of a company with a great product that failed due to premature market entry.

• Talent in technology is not only about having the right skills but also about managing market timing and having the vision to pivot when necessary.
• The story of Loudcloud demonstrates the importance of talent in recognizing timing issues and making strategic pivots.
• The concept of "ten x folks" in tech refers to individuals with exceptional vision and the capability to manage timing effectively.
• Talent can transform a failure due to bad timing into an opportunity by shifting focus to another aspect of the business.

"It would have been so easy at Loudcloud to say, like, well, we got the timing wrong, we're done. But what Ben and Mark were able to do was say, we got the timing wrong, but we're going to get the timing right on this other piece of it, and we're going to pivot into that." This quote underscores the significance of talent in technology, where leaders like Ben and Mark recognized a timing misstep with Loudcloud but used their vision to pivot successfully into another opportunity.

• Entrepreneurship requires a combination of intellect and courage to succeed.
• Courage is crucial for entrepreneurs to fight for their strategies or company survival, especially in the face of failure.
• Grit and a certain level of irrationality are necessary in the human capital of a startup for success.
• The ability to make strategic decisions, even in desperate situations, can lead to significant outcomes, such as turning a negative equity value company into a billion-dollar acquisition.

"Entrepreneurship is the intersection of intellect and courage." This quote encapsulates the essence of entrepreneurship, emphasizing that success requires both smart decision-making and the bravery to pursue a vision despite obstacles.

• Acquisitions can lead to significant revenue boosts and market dominance for certain products.
• The strategic vision of an acquisition may not always be fully realized, especially if key talent leaves the company post-acquisition.
• Retaining individuals who can drive the next wave of value creation is critical for the long-term success of the acquired company.
• The departure of key individuals can lead to the founding of influential new ventures, which can disrupt the industry and create a legacy of talent and innovation.

"I would probably give it an A-B. I think we were able to get a huge revenue boost. We essentially accelerated the market dominance of opswear." This quote reflects on the outcome of a strategic acquisition, acknowledging both the immediate financial benefits and the potential shortcomings in realizing the long-term strategic vision due to talent departure.

• Board members with operational experience, particularly former CEOs, can be incredibly valuable in guiding company growth.
• The insight and advice from experienced board members can be instrumental in a CEO's development and in making key hires that provide leverage to the company.
• A board member's brand and reputation can also attract talent and contribute to the company's success.
• The relationship between a CEO and board members can shape the trajectory of both the company and the CEO's personal career.

"Ben's experience as a CEO helps know every day, every week, every month, every board meeting. He's been just incredibly, just been invaluable in my development as a CEO." This quote highlights the profound impact a knowledgeable and experienced board member can have on a CEO's growth and the company's strategic direction.

• The brand of a venture capital firm or an influential board member can have a significant impact on a startup's ability to attract talent and meetings.
• A strong network and the "mafia" effect, where former employees of a successful company go on to create or contribute to other successful ventures, can perpetuate innovation and success within an ecosystem.
• The influence of key individuals in the startup world can shape the paths of many entrepreneurs and contribute to the broader industry's evolution.

"You're an Andreessen Horowitz company." This quote demonstrates the power of brand association in the startup world, where being backed by a reputable venture capital firm can open doors and attract talent.

• Entrepreneurs often reflect on their journeys, considering the impact of their decisions on both their personal growth and the broader industry.
• The exchange of influence between entrepreneurs and their mentors or investors is a two-way street, with each party shaping the other's trajectory.
• The personal stories of entrepreneurs can provide insights into the mindset and motivations that drive success in the startup world.

"I wouldn't have known I'd be a CEO. I wouldn't have thought I would end up in startups." This quote reflects the transformative influence of mentorship and guidance in the entrepreneurial journey, leading to unexpected career paths and achievements.