111. Developer Platform Investing, Part 2 (Ethan Kurzweil)

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Today we cover Part 2 of Developer Platform Investing with Ethan Kurzweil of Bessemer Venture Partners. In this segment we address:

  • Startup Developer Platform InvestingHis 8 commandments of building big developer-focused businesses
  • How he uses these commandments while evaluating a startup for investment
  • How he sees the future of developer platforms and what he sees on the horizon?
  • Ethan’s take on emerging, foundational platforms such as VR or the blockchain and do you look out for developer platform opportunities therein
  • And finally, having recently discussed Ethan’s father, Ray Kurzweil in our AI interview w/ Nathan Benaiche, we get his thoughts on early-stage investing in AI

Guest Links:

Key Takeaways:

 

1- Two Main Types of Developer Platforms

1. Empowers the developer: Companies that sell to the developer/technical person. And they may be directly calling an API, installing an SDK, or coding to some particular spec.

Example businesses here include:
Zammer
Twilio

2. Empowers the non-developer w/ developer capabilities: These are the companies that allow businesses to be much more efficient b/c they remove the need for significant development in developer-centric areas. So, maybe your standard knowledge worker, who is not a developer can implement tools and complete tasks that would have previously required code. Analytics tools, application monitoring tools, team effectiveness tools and communication tools. This allows development to be democratized b/c many more people can access the functionality that previously would’ve only been possible w/ code.

Example businesses here include:
Intercom
Atlassian
New Relic
Zapier
Optimizely

 

2- Why Invest in Developer Platforms?

Recall that Ethan said that traditionally, developer platforms were not considered a good place to invest. Mostly due to the fact that many developer-centric businesses were early-stage, startup companies… which are not the best target customers. The best customers are the enterprise.

But now, this area is very attractive for investment because:

* Developers are running more companies
* Developers are becoming more influential
* The investment thesis on Twilio revealed a much larger thesis on the opportunity for these types of platforms
* Tools that make money like the enterprise but can be marketed like a consumer startup
* Cost of customer acquisition can be very low. Really low hurdle to adoption.
* Need marketing, not sales. Social can be an accelerant to that.
* Target applications can have real big dollars behind them. These are big ticket items on an enterprise’s budget.
* Adoption model can be very self-service. An independent developer can sign up and submit payments. This can allow companies to get to very large scale w/o the need for a sales interaction.
* Bottoms up adoption model where a critical mass of users adopt, begin integrating into more things that they use which may ultimately warrant a purchase at the enterprise level.
* Organic and viral adoption
* Tremendous net negative churn
* Very strong business model
* Developers are empowered to pick their own tools. No committee sales decisions.

 

3- The 8 Commandments of Building Great Developer-Focused Businesses

1. A Metered Service: Is the product/service delivered in a way that can be measured?
2. Revenue Growth with Usage Growth: This is both a pricing and product question. So can the usage increase, as the business grows, in a way that can be further monetized? This results in net negative churn where the revenue per customer grows over time.
3. Replaces an Existing Paid Service: Is the new product addressing something that enterprises already spend money against? Ethan cited areas including communication, security, authentication and payments that currently occupy a line item in the customer’s budget. This fact confirms that the startup is addressing a real problem that currently exists and it also helps with the major adoption objection, which is the introduction of incremental spend. Is it easier to convince a customer to reallocate an existing cost to a much better provider or add a whole new cost to address an issue which may not exist?
4. Offers an Amazing Developer Experience: Just as important as UX is in consumer products… How elegant and pleasant is the experience for the developers adopting the product? Clearly, if it is a delightful experience, developers will to promote it, share it with others and continue using it regularly themselves.
5. Developers Love it:  Related to commandment four, here Ethan is looking for signs that this makes a developers life and work significantly better. It improves their workflow so much that the net promoter score and social media sentiment reflects intense developer appreciation.
6. Exhibit Strong Network Effects:  As more people use the product, it becomes more valuable.
7. Eliminates Non-core Skill Set that No One Enjoys:  Things like authentication or spinning up servers are necessary evils but they’re not differentiators for many businesses. By removing the busy work for many developers, they can be much more efficient and will be very attracted to any offering that can help them achieve this.
8. Democratizes Development:  Gives non-devs, dev-like functionality.

Tip of the Week:    Thematic Driven Theses & Accessing Idle Supply

FULL TRANSCRIPT

 
   

   

Listener Feedback

Pete Maglio

The takeaways to end this episode are fantastic! Thanks @TheFullRatchet & @BenEinstein! pca.st/Fey4 #smartHardware #startups