3 Reasons Why Directors and VPs Make Great Cloud Founders

When I meet with director-level executives, I always wonder if this is the person who will start the next great cloud company.

Why? Because so many cloud business-application startups have been founded by people who previously served as directors or vice presidents at on-premise or cloud business application companies.

I first noticed this trend back in the late 1990s, when I was working at Clarify an on-premise enterprise customer support software market leader. One of my coworkers was Parker Harris, who at the time was a director at the company. Clarify had acquired Metropolis, an on-premise sales force automation software company, where Parker worked. Parker and two other Metropolis/Clarify alumni went on to cofound Salesforce.com with Marc Benioff, who was then a senior vice president at Oracle.

I went on to join Salesforce myself and later watched talented directors and vice presidents went on to launch incredible cloud businesses of their own. People like Todd McKinnon, former senior vice president, and Frederic Kerrest, former Director, who cofounded single sign-on startup Okta, which now has a $27 billion market capitalization.

So what makes directors special? What makes them great candidates to start next-generation cloud companies? After noodling on the question for many years, I’ve reached a few conclusions. Here are three reasons why I love investing in people who previously served as directors or VPs at cloud business application companies.

1: They have unique insight into big customer problems. Directors and VPs work closely with customers, so they have the ability to see business problems that are just starting to emerge — and are begging to be solved. The challenge is that large cloud business application companies are focused on their core products, so they simply don’t have the bandwidth to tackle many of these emerging opportunities.

A good example is Daniel Barber, founder and CEO of DataGrail, who worked as both a director and a VP, and noticed that changing consumer privacy regulations in the EU and North America were posing a number of challenges for businesses. Daniel had worked at Responsys, an email marketing company acquired by Oracle for $1.5B, and ToutApp, a sales and marketing messaging platform acquired by Marketo later acquired by Adobe for $4.8B. He knew that enterprise sales and marketing systems were not built to be compliant and customers could not keep with these ever-evolving requirements. So he and his co-founders created DataGrail to solve this problem.

If you’re director and see a big problem to be solved in the cloud that is not being fully addressed, you should really think about stepping up and doing something about it.

2: They have managed and led people. Directors are battled tested. They have already attained a certain level of management and leadership experience. They might not have managed a thousand people — or even a hundred. They might have managed only 5 or 20 people. But that in itself is valuable experience and a great first taste of what it might be like to lead an entire company. Recruiting, managing, and leading people is challenging, hard and meaningful for the right people and critical for leading through the highs and lows of building a great cloud business application company. They also know the right people to work with and hire, including the best engineering teams to solve the problems they’re going after. They’ve usually worked with these people in the past and trust them to help execute on their vision.

3: They know when the time is right. Many directors have an innate sense of the right time to strike out on their own. For many, that time is now.

Some of the bigger, publicly traded cloud companies are putting out lower revenue guidance, as enterprise customers slow down their purchasing in the wake of Covid-19. What does this mean for directors? It means that their job security may not be as solid as it once was. If you’re a director in a certain product area and that product no longer makes the cut, you might not have a job six months down the road. And even if you do have a job, you might be asked to downsize your team, which can be a harrowing experience both professionally and personally.

Even if starting your own company is not in the cards right now, this might be the time to think about transitioning to a VP role at a promising early-stage startup that is still in its Series A, B, or C stage. This could be a great opportunity to upgrade your career by moving from a director role at larger cloud company to a VP role at an emerging cloud leader. You will gain more valuable earlier stage experience you can leverage in the future to start and lead a company.

And, if you are now thinking about launching your own cloud company, time will be on your side. Why do I say that? Because building a great enterprise-ready cloud application takes about six quarters. These are six quarters when enterprise sales will likely slow down anyway due to the pandemic. Which makes the timing perfect. Directors and VPs generally have personal relationships with five or ten customers who desperately need their problem solved who can be good alpha and beta customers. When your product is ready for prime time, a year or two from now, customers will be on the path to recovery and ready to buy again more broadly.

The best entrepreneurs with the best ideas will do so and will be able to raise capital. Historically, some of the most impressive technology companies — including Google, Salesforce and Okta — have been launched in extremely challenging times. We are now in such a time. And I believe that directors and VPS who take a bold leap forward today can build the company of their dreams and be greatly rewarded tomorrow.

~Matt Holleran, General Partner of Cloud Apps Capital Partners