In Pursuit of Becoming a Platform

StartupsI focus exclusively on investing in software startups that build products used by businesses and business users. My current and past portfolio includes infrastructure companies such as Aria Systems and Splice Machine as well as application software companies such as Doximity, MarketoStellar Loyalty, and Workday. Most of these use a SaaS business model.

My investments are often very early stage – Seed and Series A – with either just a product/market concept (e.g. we invested in Marketo when it was just an idea, no code or customers; the same with Doximity and Stellar Loyalty) or prior to a Minimally Viable Product (MVP) such as the case with Aria Systems and Splice Machine.

This involves a lot of risk because these companies have significant hurdles to overcome — incomplete teams, lack of product/market fit and/or a repeatable go-to-market process. The trade-off for that risk is ownership. We can secure 20%+ ownership in these companies so that if they are successful, they have the opportunity to be significant drivers in our fund.

This is the major reason I tend to limit my investments to areas where I have significant personal operating expertise — I spent 25 years building and marketing software for businesses at companies such as Apple, Oracle and Siebel Systems. And, due to that experience, I have a deep network of people I can rely upon to help staff these companies across engineering, marketing, sales, etc. 

Even so, since I became a venture investor about 10 years ago, approximately half of my investments have failed – for varied reasons – within the first 3-5 years of my investment. Fortunately, my successful investments have done well enough to significantly overcome my losses. But, the failures have led to some stomach-churning moments for me as my portfolio valuation has fluctuated with realized losses waiting to be countered with realized returns.

A Taxonomy for Start ups

So, given that I don’t usually have the luxury of being able to evaluate product usage data, capture customer feedback, or interview a complete management team when I make my first investment in a company you might wonder what I do to help mitigate risk.

Here is my approach. 

In the first meeting with a start up, I try to decide where it fits against the following taxonomy:

  • Feature
  • Product
  • Company
  • Platform

I classify a “Feature” start up as one with initially a fairly lightweight capability that should eventually grow to be part of a larger product or product line offering. An example of a Feature start up might be one that is focused on improving an existing product with a simple add-on. A “Product” start up usually has a single product or a good idea for a single product with a large and addressable market. For me to believe a start up can become  an independent “Company”, I look for it to articulate a credible strategy on how it will develop a suite of integrated products/product lines over time.

A “Platform” is no longer a start up. It is a Company that not only has its own product and product line offerings but also attracts other companies to develop offerings based upon its products.

I believe all business software companies should strive to become a Platform and to do that as fast and as cost-effectively as possible. Platform companies tend to be market leaders and garner a premium for their stock. They typically have valuations well above $1B. They can sustain economic down cycles because so many companies depend upon their technology to run their businesses.

Start ups that don’t set their sights on becoming a Platform and/or “only” make it to the Company stage, can still be a worthwhile investment/endeavor but typically they are acquired by larger incumbents to fill in product gaps. Few business software Companies are able to survive the long-term independently unless they become a Platform. Start ups that don’t make it past the Feature or Product stage – in the business software market – are usually acquired or shut down for modest or no return. 

I invest in very early stage business software start ups; all are either Feature or Product start ups. And, I am part of a larger fund so I am compelled to seek start ups where I can see a path for them to become Platform companies. If we were a smaller firm, I might be able to invest in start ups where I could see a path to becoming “just” a Company. I pass on many start ups I see for this reason — they may have a great idea but I just can’t see a path to becoming a Platform. We need large returns to cover the significant capital we put to work and the losses we generate from making early stage investments.

I use my simple taxonomy to help me think about and communicate with my partners the amount of capital the company may need, the type of go to market strategies it will use, and to define a pathway for how the start up might become a Platform company. 

The (not so) Secret to Becoming a Platform

So, what is one thing all business software start ups need to eventually evolve into a Platform?

One word. Partners.

I believe that all business software start ups should have a well-constructed approach to partnering from inception. By partners, I don’t mean a channel or team of resellers. I mean a strategy to partner with companies that have complementary offerings and are willing to go to market jointly.

By combining resources with partners – in areas such as demand generation and sales – you can substantially reduce your customer acquisition costs and significantly increase your brand awareness.  And, as you grow toward becoming a Platform, you will have a created a well-developed ecosystem that is reliant upon your success for its own. This ecosystem will also help you to thwart any emerging competitors.

I know a little about this topic because I was responsible for building the Siebel Systems partnering program. Over 4 years, we grew from our first partner (Andersen Consulting/Accenture) to  more than 750 partners — consisting of systems integrators, hardware companies, software companies and others. These weren’t “resellers”. These partners jointly went to market with us via events, email campaigns, advertising, and sales calls – we sold our products/solutions and they sold theirs. Over time much of our partners’ lead generation and revenue was dependent upon Siebel Systems. 

By 2001, Siebel had more than 200 Alliance Managers in its Alliance organization who helped to drive nearly $1B in annual Siebel revenue and won awards from Forbes and IDC for its innovative approach. As the head of the Alliance organization, I reported directly to the CEO due to the importance of this function in revenue generation.

Unfortunately, I find most start ups and even larger companies pay “lip service” to their partner programs. They hire a few people, put them under the Sales, Marketing, or Products organizations and expect them to work with dozens/hundreds of companies. Then they wonder why their programs produce very little. If you want to learn  what made the Siebel Alliance Program successful, there is a Harvard Business Schoool case study on it. I encourage you to get a copy as it provides a prescriptive, detailed overview of how we built and staffed the program.


The takeaways for this post are:

  1. Identify where you are on the start up taxonomy: Feature, Product, or Company….if you are already a Platform, congratulations! You aren’t a start up and don’t need any advice offered here!
  2. If you don’t already have a strategy/roadmap for how you will get from where you currently are to be a Platform, I encourage you and your team to create one — and make partners and the partnering process a key element of that strategy. You will substantially increase the likelihood of your success and use far less capital in the process.



  • Robert Shutt

    Bruce great insights/overview ! Always glad to help out in any way we can.

  • Andrew Salzman

    A very good piece on the criticality of building a partner ecosystem based on joint value props that may entail both co-development and co-selling. It is important, however, to separate out Partners/Allies and Distribution/Sales. Partners enhance the value prop or the compelling reason to buy by fulfilling whole product requirements (adding beyond what your product does to fulfill a reason to buy). Allies support solution acceptance such as analysts, media, blogger endorseme
    nts. Sales means an indirect channel for your product. Too many people conflate partnering to fulfill whole product requirements with indirect channel selling. We at Chasm Group run workshops on this very issue including diagnostics on how to choose the right partners based on your stage of technology adoption. Great that you raise this issue for early stage companies, Bruce.