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Why Growth-stage Companies Must Perpetually Innovate Their Technology

This past year has seen an interesting exit market. With new investment vehicles, companies like Uber continuing to stay private and colossal IPOs like Snap ultimately struggling, the 2017 investing environment has certainly offered a lot of insights. For companies looking to IPO, there are a few strategies for success — and obsolescence — that I’ve observed that will be important to master heading into 2018 and beyond.

Reengineering the tech stack

When you’re a startup, using the latest technology is what enables you to move fast. Once you’ve been around for five years and are earning $25 million in revenue, getting bogged down by technology is how you slow down. Young companies can build their architecture completely on top of the cloud. They can use the latest offerings from AWS or Google Cloud with minimal infrastructure and maintenance overhead.

As your company matures, you have to deal with technical debt, buggy code and a mix of cloud and on-premise servers. Maybe you still sell software on a licensing model and you need to figure out how to deliver it via the cloud to stay relevant. You have to choose whether to try to keep grinding on a creaky stack or take the time to fix it. Until you reengineer your stack, you’re just putting bandages on much larger problems. Here’s why:

  • Technical debt: Products break under scale as they accumulate bugs and unwieldy code. Small bugs that don’t matter that much in the beginning compound into huge problems down the line.
  • Aging tech: If you don’t reengineer your technical stack every five to six years, you cripple your ability to offer the best product and user experience to your customers.

A common protest among founders is that it’s not the right time to reengineer, but the truth is, you’ll never find the perfect time to rebuild your architecture. Rebuilding means simultaneously figuring out how to deliver your software as a service. You’ll need to cut from sales and marketing spend as you divert resources to engineering. Choosing to rebuild your stack means you will miss sales goals and revenue targets — which your board is pressuring you to meet to secure your next round of funding. It’s a choice that might not be popular with your team, your board or your stakeholders, but it’s one you have to make sooner rather than later.

Keep it simple … the product, that is.

Even in enterprise software, products win by being easier to use. Maintaining discipline around building a product that is easy to use and one that customers want to use is another big challenge as you scale. Innovating on the product side is the only way you can stay ahead of your competitors even when you become a large successful public company.

Specifically, keep an eye out for:

  • User interface and ease of use: Design grows stale rapidly and if you don’t refresh your product, it will look dated very quickly.
  • Feature creep: As your product grows over time, you add on a lot of extra features. This eventually bloats your product and makes it unusable. Growing your product means knowing what to cut.

Everyone pays lip service to building a customer-facing product, but it’s hard to stay focused on this as you grow. Your engineering team is larger, which means communication overhead grows and development cycles lengthen. Your product is also bigger because it has evolved to serve a bigger customer base.

To keep focused on product, you have to think through the user experience and the entire workflow of what your customers are trying to achieve. All these things constantly change over time.

Ever-evolving: Nutanix

Dheeraj Pandey, founder and CEO of Nutanix, likes to say that “the most transformative technologies are the ones we don’t think about. They work all the time, scale on demand and self-heal. In other words, they are invisible.”

As Nutanix scaled, it tackled increasingly difficult technical problems around the data center, hyperconverged infrastructure and the hybrid cloud. The beauty of Nutanix’s products is that they have evolved over time to make this complexity disappear for the customer.

For Nutanix, this meant launching “one-click” technology that enables instant software upgrades, analytics, planning and efficient maintenance. Where overworked system admins were once responsible for provisioning and maintaining hundreds of servers, Nutanix’s products enable them to do it all on their phones. The company’s focus on product revolves around delivering enterprise-grade scalable infrastructure and making it easy to access and manage from anywhere.

Innovation over replication: Snapchat

Snapchat’s initial product offering has been quickly replicated by competitors. Our social channels are flooded with Snapchat-like capabilities, with Instagram stories, Facebook stories, and even the new LinkedIn video feature bringing the story function to the platform.

As Snapchat has scaled, it has kept innovating to stay ahead of its competitors. Although the Snapchat glasses have not been a huge hit, it has not stopped the company from developing new features, which are truly innovative like separating out stories from social and media. The company has also made the Friends page even more dynamic to make it more personal, and is using AI and machine-learning to make the Discover page more relevant and interesting.

Snapchat is facing intense competition from other social-media companies, but it has realized that to stay ahead, it will have to keep innovating its products/services with unique features that its users like and use.

Looking forward

Ultimately, companies need to work hard to grow, and part of that process may seem counter intuitive, since it involves taking a couple of steps back. But to succeed in the long term, you must make sure that you’re moving forward in the strongest way possible.

So as the new year comes upon us, resolve to encourage the best version of yourself, and your business, by continually reinventing, reengineering and refreshing your products. The world, and tech especially, is constantly changing. If you, too, keep changing with the times, you won’t be left behind.

This article originally ran on peHUB on December 26, 2017. https://www.pehub.com/vc-journal/why-growth-stage-companies-must-perpetually-innovate-their-technology/


 

Disclosures:

The information set forth herein is not intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not solicit or make its services available to the public and none of the funds are currently open to new investors. Past performance is not indicative of future performance.

The portfolio companies referred to above do not necessarily represent all of the investments made or recommended by Sapphire Ventures, and were not selected based on the return on Sapphire Ventures’ investment in them. It should not be assumed that the specific investments identified and discussed herein were or will be profitable. Not all investments made by Sapphire Ventures will be profitable or will equal the performance of the companies identified above. View all of Sapphire Ventures’ investments here.