Notes from an interesting discussion with Marcus Ryu, the CEO of Guidewire:
Key lessons (alongside relevant quotes by Marcus from the discussion):
Be cautious in celebrating successes and commiserating losses. Sometimes the real significance of an event is not obvious at the outset
“ I’ll tell you a covering story first, which is something that another one of my co-founding partners who was the CTO. He told this story internally early on about this Chinese parable which you can look up on Google, but it’s about a farmer and his son.
It’s a farmer and his son. They were very poor and they had a horse. That was their only asset. One day, the horse runs away and the neighbors say, “Well, that’s a calamity for you.” The farmer says, “Well, maybe yes, maybe no. We’ll see.” Then the horse returns, but it’s brought with it a herd of wild horses. Now, they said, “Well, you’re rich.” The neighbors say, “You should be very happy.” The farmer says, “Well, maybe yes, maybe no. We’ll see.”
Then the son is trying to train in one of the wild horses and falls off and breaks his leg. The neighbors say, of course, “Oh, this is a calamity for you.” He said, “Well, maybe yes, maybe no. We’ll see.” Then there’s a war and it kills all the young men in the village, but not the son because he didn’t go to war. He had a broken leg. The neighbors say, “Wow, how fortunate for you.” He says, “Maybe yes, maybe no. We’ll see.” That story.
The incredible thing is my partner told us this story in the early days and he said, “This is how we’re going to get through some difficulties.” Then almost like a movie, we had episodes of incredible good fortune and incredible disaster, each of which turned out in hindsight to have been the opposite of what it seemed.
I’ll give you a few examples. We lost our first customer very early on. They canceled the project and it turns out that we would have built the wrong product because it was led by a very very aggressive guy who wanted something other than what really the product ought to have been. Long story short, it really would have thrashed the product in a direction that would have hurt us, compromise us with our early customers.
We had a very tense relationship with our investors for a spell and they wanted to impose a CEO on the company, which we thought that was a bad idea, but there was a moment where we relented. A CEO was imposed on the company for about nine months. It was a disaster, which we thought … We nearly ran out of cash, but it turns out that then sort of transformed our relationship with our investors where they were a bit humbled by that. Whereas if that had happened another three or four years later, it would have been much more damaging.
Then there was an episode where we were sued about nine years in by our primary competitor. It was Accenture, on essentially a couple of business method patents. We were actually nearly put out of business because our customers, insurance companies said, “Well, it’s not about the merits of the case. It’s just you have a litigant here who has the determination to prevail and you could be out of business before this is resolved, so we just can’t buy your software. We can’t spend $50 million on a transformation project and be enjoined from using the software.”
For a year, our sales were paralyzed and I had discussions with my wife and I know my partners had with theirs saying, “Maybe we threw away our career. There will be nothing to show after a decade.” How did that turn out to be such a good thing? Well, it distilled the energies of the company into this white hot rage in those days where we said maybe …
This is one of my proud moments in the company where I said, “We thought that we were starting a company that was going to achieve all of this and maybe make us wealthy, et cetera. Well, maybe our destiny was to create a company and just to stand up to this bully. That’s our existence. That’s our purpose. I’m here for that. I mean, who’s here with me? Because I sure as hell am not going to capitulate now and we’re not going to let this win. From now henceforth, we’re not going to call them Accenture. We’re going to call them the enemy.”
To this day, there are people in the company who will say, “So what does the enemy think about this? I just saw this press release by the enemy, and we are going to fight.” As it turns out, it also delayed our IPO by a few years, which was an incredible blessing because we were that much more prepared at the time.
The people who were with us through that moment we’re bound to the company and its mission and its identity with such emotion that we’re a much more resilient company for it, and I wouldn’t trade that for the world.”
Grit is an under-appreciated asset. In the early stages of a business, it is the most important quality
“I was not the CEO in the beginning of the company. One of my co-founding partners was. He had one very, very special quality, which was a kind of insane doggedness about these conversations. I’ll tell you another little story, a thing that he used to say. He said this actually at the very first day we were together as a founding group. He says, “I’m not the smartest of you guys. I’m definitely not the most insightful, but I am sure to be the hardest worker. No one here was going to outwork me. When I was in college …” I’m speaking for him now.
He says, “When I was in college, there was a guy who managed somehow to date every beautiful woman who went to our school, and he was very ordinary looking and very average in every sense. When I asked him what his secret was, he said, I’m just the guy that asks the most. I’m going to be the guy that asked the most, and I have no problem being rejected.” He says, “I’m going to be that guy and we’re going to be that company. We’re going to be the company that asks the most.”
That’s what we were. We asked every person we knew. The P&C insurance industry employees like two million people, so there are a lot of people to ask, and most of them said no. Tiny probability is multiplied over a large enough N is enough to generate that first customer and then maybe the second and so forth.”
Find yourself the most suitable investors and partners. For instance, in a business where sales timelines might be long (e.g. enterprise sales), find someone who is willing to bat out a few years without signs of any result
“ think objectively, when we question if we were a fundable company because our minimally sellable product was two or three years to build. The minimal functional footprint to even be credible for what we were promising was so large that it took years to build. There was no way to buy 10% of it. There was no way to sample it. You just had to make a big transformation decision as a company and commit real capital.
I think the way that we solved that problem was finding investors to whom I will be eternally grateful because without them, I wouldn’t be before you today, but who may not have understood how hard it was going to be.
Again, to use other metrics and other bits of evidence of our market traction besides actually having a customer that persuaded them that maybe we were on to something, but they, I think, did not fully appreciate just how daunting a sales challenge we had before us.
We had some tense discussions over the years saying like, “Is this going to go anywhere?” We had to remind them. I said, "Look, one thing that we were very truthful with you from the very beginning was that we’re going to be … There are some businesses that no one has ever thought of that you imagined in the shower and become explosive and everyone says, ‘Why didn’t I think of that?’ ”
You don’t always need domain expertise to start something big. You can educate yourself and find relevant partners along the way
“None of us were insurance people as such. The closest that we could claim to that was my own brief tenure in the insurance practice at McKinsey, which allowed me to spell property and casualty correctly, but that was about it.
We had a lot of education to do and we recognized that one of the first things we needed to do was to marry two very disparate skillsets. People who understood how to build mission critical software with people who actually understood the PNC domain.
On top of that, we then had to lay our people who understood how to deliver a large scale enterprise transformation projects. Over the last few years, we’ve had to add people who understood data science as well. Those are quite different strands of DNA. The cultural challenge has been, well first, how do you recruit those individuals and how do you unify them in pursuit of a common goal and make them feel like they’re part of one organization.”
It is better for your company to solve a niche problem deeply and greatly than be average at a few things
“There’s an asymmetry between the fact that the average claims worker is paid maybe $40,000 a year, but is writing out checks for $2 or $3 million a year and doing it in 1980s COBOL mainframe systems and buried in paper with all kinds of manual processes, et cetera.
Our thesis was that these individuals, as hardworking as they may be, were making systematic errors that were causing dead weight economic loss. It’s not just the better software would make their lives more ergonomic and productive, that they would actually prevent errors that were dead weight lost to their own companies. That there would be a very compelling economic value proposition there….
….The final thing I’ll say is that in that era perhaps when that table pounding was happening, the idea of building a vertical software company was definitely counter-intuitive. It wasn’t a big enough market. It’s hard to sell to whatever it might be.
I would like to think that Guidewire along with a few other super examples, like Veeva was a more successful company than Guidewire, have proven that if you solve a deep enough problem, and those very deep problems tend to be industry specific and you do it in a sufficiently general fashion to capture enough market space, you actually can create an interesting and independent software company. I’m very gratified that we were able to prove that in our own little world.”
Btw, here’s where Guidewire stands among P&C software companies as per Gartner’s magic quadrant:
You can read the full transcript of the interview here.