Episode 42: Opsware (with special guest Michel Feaster‪)‬

In episode 42 of Acquired, hosts Ben Gilbert and David Rosenthal, along with guest Michelle Feaster, delve into HP's 2007 acquisition of Opsware for $1.6 billion. Feaster, a former director of product at HP and now CEO of Usermind, provides insider insights on the deal from HP's perspective, contrasting the well-known narrative from Ben Horowitz's book "The Hard Thing About Hard Things." The discussion covers the strategic rationale behind the acquisition, the integration challenges, and the cultural dynamics post-merger. They also touch on the role of timing, talent, and courage in business success, with Feaster sharing her experiences and the impact of having Horowitz as a mentor and board member at Usermind.

• Hosts and guests on the podcast grade acquisitions.
• Guests are given the option to grade or not, especially if they were involved in the acquisition.

"So we also grade acquisitions. 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 it."

• The grading of acquisitions is a regular feature on the podcast.
• Guests with personal involvement in the acquisition have the option to abstain from grading.

• Episode 42 of the Acquired podcast is focused on the 2007 acquisition of Opsware by HP.
• Guest Michelle Feaster, who was the Director of Products for the division that purchased Opsware, shares insights from the HP perspective.
• The story of Opsware is commonly known from Ben Horowitz's book "The Hard Thing About Hard Things."

"Today we are covering the 2007 acquisition of Opsware by HP. We have with us a fantastic guest, Michelle Feaster."

• Episode 42 features a special guest with direct involvement in the acquisition discussed.
• The podcast aims to provide an alternative perspective on a well-known tech acquisition story.

• Michelle Feaster is the co-founder and CEO of Usermind, a customer engagement hub based in Seattle.
• She was previously the Director of Product for Hewlett Packard's enterprise software business and led the acquisition of Opsware.
• Ben Horowitz, co-founder of Opsware, is now on the board of Usermind on behalf of Andreessen Horowitz, his venture capital firm.

"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."

• Michelle Feaster has experience from both startup and large enterprise perspectives in the tech industry.
• Her past role in HP and current connection with Ben Horowitz highlight a full-circle career journey.

• The podcast has a Slack community with over 800 members discussing M&A, tech news, and major events like the Whole Foods acquisition.
• The hosts encourage listener engagement through reviews on Apple Podcasts to help grow the show.

"We've got a Slack, and we are over 800 strong, that is at acquired FM on the sidebar."

• The podcast has a dedicated community where listeners can engage in discussions related to the show's topics.
• Listener reviews on Apple Podcasts are appreciated as they contribute to the podcast's growth.

• Statsig is a company that conducts live product experiments and processes a large volume of events per day.
• They work with major AI companies and have expanded their product offerings to include feature flagging, warehouse-native experimentation, and product analytics.
• Special onboarding is offered to Acquired podcast listeners who want to use Statsig's data-driven product decision platform.

(Note: As per the instructions, the advertisement content is not included in the study notes.)

• Loud Cloud, founded in September 1999, was an early concept of Infrastructure as a Service (IaaS), aiming to be like AWS before AWS existed.
• The company was founded by Marc Andreessen, Ben Horowitz, Tim Howes, and Sick Re.
• Loud Cloud raised significant funding pre-launch and went public in March 2001 but struggled after the tech bubble burst.

"The company that ultimately became Opsware was founded as a different company called Loud Cloud."

• Loud Cloud's ambition was to provide infrastructure services similar to what AWS would later offer.
• The company's history is marked by significant funding rounds and a public offering followed by a pivot in strategy.

• After selling the managed service business to EDS, Loud Cloud pivoted to focus on Opsware, an internal tool for managing data centers.
• Opsware was designed to address the complexities introduced by virtualization in IT infrastructure.
• The pivot involved transforming an internal tool into a commercially viable enterprise software product.

"They sell that for just over $60 million. But that's the whole business. There is no other business within the company."

• The pivot from Loud Cloud to Opsware was a strategic move to salvage value from the company's technology amidst market challenges.
• Opsware became a key player in the enterprise software market by addressing the growing complexity of IT infrastructure management.

• Virtualization technology, like that developed by VMware, was essential for the feasibility of services like AWS.
• The technology allowed for the division of physical servers into multiple virtual machines, increasing efficiency and scalability.
• Opsware's growth was significantly driven by the proliferation of virtualization in enterprise IT environments.

"Virtualization is a key reason why HP needed to buy Opsware."

• Virtualization technology was a catalyst for both the challenges and opportunities faced by Opsware.
• The adoption of virtualization by enterprises created a market need for Opsware's data center management solutions.

• The transition from an internal operations tool to a product suitable for external customers was a significant challenge.
• The pivot required addressing usability and packaging the product for a broader enterprise market.
• The Opsware team had to overcome the difficulties of making this transition while being a publicly traded company.

"To take that software and figure out how to package it up... that's a pretty hard turn to make."

• The pivot from internal tooling to a market-ready enterprise software product demanded substantial effort and innovation.
• Opsware's success was partly due to the team's deep understanding of the target user persona and the pain points in managing complex IT environments.

• The speaker reflects on a significant moment in their history that they hadn't spent much time discussing previously.
• The discussion pivots to the recognition of Ben's book, which is appreciated for exposing the myth of perfection in leadership and granting permission to discuss the hardships of being a CEO.

"Yeah. And thank God, right? 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, CEO's and leaders permission to talk about all of the hard things, right. That really make, or what he calls the struggle."

The quote emphasizes the importance of Ben's book in changing the narrative around the reality of being a CEO, highlighting the struggles rather than perpetuating the myth of perfection.

• The speaker details their personal journey at Mercury Interactive and the acquisition by HP.
• Mercury Interactive was a mid-sized company that grew significantly during the speaker's tenure.
• The speaker had a technical sales background and was involved in strategic product management, which provided a solid foundation in understanding product strategy.
• The acquisition by HP was not actively sought out by Mercury Interactive, and all acquisitions are recognized as challenging.

"Yeah, I love Mercury. I mean, we weren't looking to be. All acquisitions are hard on all sides."

The quote reflects the speaker's affection for Mercury Interactive and acknowledges the inherent difficulties in the acquisition process.

• The conversation shifts to the state of the market in 2007, with a focus on virtualization and data center automation.
• The speaker discusses HP's position in the market and the need for a strategy to lead in data center automation.
• The acquisition of Opsware is seen as a strategic move to place HP as a market leader in automation, competing with other major players.

"And when you look at that. What that really means is that all these kind of human methods, the manual ways of now automating data center management, end to end, start to break down, essentially, you can't scale human beings indefinitely."

The quote explains the motivation behind HP's move into automation, highlighting the limitations of manual data center management and the need for scalable solutions.

• The speaker outlines the decision-making process between building a solution in-house or acquiring a company.
• The process involved assessing the market, understanding HP's capabilities, and determining the strategic fit of potential acquisitions.
• The speaker references Sun Tzu's advice on knowing oneself and the enemy as part of the strategic decision-making process.

"So you're only left with buy or exit the market."

The quote encapsulates the speaker's conclusion that in a consolidating market, HP's options were limited to either purchasing a company or exiting the market altogether.

• The speaker discusses the strategic importance of data center automation and how it relates to the future of IT operations.
• The acquisition of Opsware is seen as a strategic control point for HP and a way to strengthen their existing business.

"So to me, that goes to the. Now you're in the second question, which is, okay, if it's either go buy the winner or shut your business down, that you've asked the next question, which is, is this strategic land? Do we have to own this land?"

The quote highlights the strategic considerations behind acquiring Opsware and the importance of owning a critical segment of the IT operations market.

• The speaker describes the acquisition of Opsware by HP for $1.6 billion and the remarkable turnaround from Opsware's previous market cap of $28 million.
• The integration process and cultural fit between HP and Opsware are topics of interest, given Opsware's history of overcoming challenges.

"So five years later, incredible turnaround and achieve an exit that's 50 times that."

The quote reflects on the impressive growth and success of Opsware, leading to a lucrative acquisition by HP.

• The speaker details the acquisition process, including the involvement of corporate development and the technical due diligence conducted.
• The decision to acquire Opsware over BladeLogic was based on a combination of market leadership, product strategy, and the potential for successful integration.

"But the second piece of math for us was that if we had gone after Blade logic, we would have had to do three additional acquisitions."

The quote explains part of the rationale behind choosing to acquire Opsware instead of BladeLogic, considering the complexities and risks associated with multiple acquisitions.

• Opsware was chosen over Blade Logic due to strategic alignment, market leadership, and perceived ability to execute.
• Opsware had a full suite of products and was considered more likely to integrate successfully despite product inefficiencies.
• A premium was paid for Opsware, and Blade Logic was kept as a fallback option.

"So the two pieces for us on Opsware were, I guess, three, strategic alignment. They had the full suite. They were the market leader. And even if they had some product inefficiencies, we felt that we were much more likely to be able to execute that successfully than Blade Logic plus three others."

• This quote highlights the reasoning behind choosing Opsware over Blade Logic, emphasizing the importance of strategic alignment and market leadership in the acquisition decision.

• Ben Horowitz implemented "Freaky Friday," a management technique where executives swap roles.
• The integration was led by someone with cultural values aligning closely with Opsware's team, facilitating smoother integration.
• Cultural friction and operational hurdles were significant challenges during integration.

"Ben actually swapped me and his head of product at the time, Eric Vishria. So Eric took over ITSM... And Ben gave me production, and that was an incredible... So he calls it Freaky Friday, where he swaps executives."

• This quote explains the "Freaky Friday" management technique used during the integration, which was meant to help leaders understand different parts of the business and contribute to the cultural integration process.

• The integration faced operational challenges, such as shutting down non-approved apps critical to Opsware's operations.
• There was a strict deadline for integration with clear objectives.
• Cultural friction was absorbed by the integration leader, facilitating smoother transition.
• Sales overlays were used to disseminate expertise of the acquired company to the HP sales organization.

"And I remember being on the phone with the IT organization, and the IT organization is insisting that we have to shut down all these non-approved apps that Opsware has."

• This quote illustrates the operational challenges encountered during the integration, highlighting the conflict between existing IT policies and the practical needs of the newly acquired Opsware's business operations.

• The Opsware sales team was a finely tuned machine, but the HP sales team had a broader portfolio and needed to learn to sell Opsware.
• There was a huge enablement challenge to train the HP sales team to sell Opsware effectively.
• Post-acquisition, there was significant growth in the business.

"The biggest question is, how do you train and enable that sales organization to be even half as effective as an Ops core person was in objections and challenges and competitive landscape and so forth."

• This quote addresses the challenge of training the existing HP sales team to sell the Opsware product, emphasizing the need for effective enablement to maintain sales effectiveness post-acquisition.

• Innovation is difficult in large companies due to cultural mismatches and the inability to retain top talent.
• Big organizations struggle with innovation because it requires foresight and the courage to bet on the future before it's obvious.
• The success of software is highly dependent on the people and leadership processes.

"Innovation number one, is a people thing. So you have to have a really high quality of thought. And that's all people."

• This quote underscores the importance of people and quality of thought in innovation, pointing out the challenges large companies face in fostering an innovative culture.

• The acquisition was rapid, aimed at injecting Opsware's DNA into the broader HP organization.
• The goal was to transform HP's software culture and integrate Opsware into the larger strategy.
• The acquisition was not run as a standalone business but was part of a larger transformation within HP software.

"The integration was incredibly rapid, and the purpose of that was to inject the DNA into the broader organization."

• This quote reflects on the integration approach, which was designed to quickly assimilate Opsware into HP and leverage its capabilities to transform the broader software organization.

• Puppet and Chef are seen as the natural successors of Opsware in the data center automation market.
• It's challenging for big companies like HP to anticipate and adapt to market disruptions.
• The quote discusses the necessary conditions for big companies to innovate and adapt to changes in the market.

"So the second challenge that's really hard is that disruptions often sneak up on you... You need the geniuses. You need them to see far, like, with almost no data, and you need leadership. Who will bet based on that?"

• This quote delves into the difficulties large companies face in recognizing and responding to disruptive technologies, emphasizing the need for visionary talent and leadership willing to take risks based on foresight.

• Companies often learn from missed opportunities, gaining new perspectives.
• Adapting to customer demands is crucial after a setback.
• Desperation can lead to innovation, as seen with Apple's iPhone.

"We missed this war and we missed the battle, but hopefully we hit the next one."

• This quote emphasizes the idea that missing one opportunity can prepare a business to capitalize on the next one.

• Timing is crucial for technology products, both consumer and enterprise.
• Loud Cloud was ahead of its time, similar to AWS before AWS existed.
• Sequoia's study highlighted timing as the most critical factor in investment success.
• Talent in technology is about managing timing and pivoting when necessary.

"Loud cloud was 100% the right product... But the timing was wrong."

• This quote illustrates the point that a good product can fail if introduced at the wrong time.

• Managing timing involves both vision and the ability to adapt.
• Entrepreneurs need both intellect and courage.
• Grit and a bit of irrationality are essential for success in the tech industry.

"Entrepreneurship is the intersection of intellect and courage."

• This quote captures the essence of what it takes to be a successful entrepreneur, highlighting the importance of both intelligence and bravery.

• Assessing past business decisions can lead to different grades based on perspective.
• Strategic vision and the impact of people are crucial for long-term success.
• The founding of Andreessen Horowitz is viewed as a positive outcome from a past acquisition.

"I would probably give it a b... An a from that point of view."

• This quote reflects on grading past business outcomes, considering both the immediate financial impact and the broader influence on the tech industry.

• Operators and former CEOs can be valuable board members.
• Board members contribute to a CEO's decision-making and growth beyond board meetings.
• The reputation and expertise of board members like Ben Horowitz can significantly shape a company's trajectory.

"An executive is someone who gives you leverage."

• This quote provides insight into what to look for when hiring executives, emphasizing the need for them to provide leverage to the CEO.

• The concept of venture capitalists as company builders is crucial.
• Venture capitalists should add value beyond just funding.
• The brand and network of a venture firm can attract talent and shape the success of a startup.

"You're an Andreessen Horowitz company."

• This quote highlights the influence and prestige associated with being backed by a well-known venture capital firm, which can open doors and provide opportunities for startups.

• Mentors and leaders can significantly influence personal career paths.
• Founding a startup or joining an established one can be a pivotal decision.
• The tech industry provides opportunities for continuous learning and growth.

"He's profoundly changed mine."

• This quote reflects on how a mentor's guidance can alter someone's career path and lead to unexpected and fulfilling roles within the technology sector.