[tptacek]

I have a sort of general question about this narrative, which seems to apply to lots of startups that begin as self-service, developer-focused projects and end in enterprise hell.

Is it not the case that these startups begin developer-facing, get market traction, are lavishly funded, and then discover that the self-service offering they've built simply can't satisfy the projections they've made to justify their valuation?

Which is to say: would Optimizely be doing much better if they hadn't pivoted into enterprise hell? Or would they be a much smaller company?

I see why customers would have a strong preference! But it's less clear to me what the right decision for the business is. But I'm just asking!

[kelnos]

It's possible to do both. At Twilio we started as a self-service, developer-focused company. Today we have many large enterprise customers (and spend a lot of effort to court those kinds of customers), but we still have a huge number of small developers, and one-person hobby shops can and do still easily set themselves up to use our platform. We have added some enterprise-only features, which I sometimes have mixed feelings about, but everything that's traditionally been available to non-enterprises is still available to anyone with a credit card.

I completely agree with you on (at least in terms of Twilio's experience):

> would Optimizely be doing much better if they hadn't pivoted into enterprise hell? Or would they be a much smaller company?

We were definitely going to hit a ceiling if we didn't add enterprise features and work on getting all the various certifications that large companies will require to even start talking to you, and build a sales force that knew how to sell to larger companies. If we hadn't done all that, we'd be a much smaller company today, and likely a competitor would have done it instead and eaten our lunch.

[adventured]

> It's possible to do both.

I think the more interesting question is: can you always do both?

I agree in a general sense, as there are a lot of excellent examples in the wild at this point (of companies consciously maintaining their developer base), such as Cloudflare, Fastly, Stripe, DigitalOcean, Twilio, GitHub and so on.

It may be a case where it's much easier for some types of services than for others.

[kelnos]

It's probably true that you can't always do both, but I'm not seeing how it wouldn't be possible with something like Optimizely.

[richardFINEman]

I worked at Optimizely for 4 years and can tell you that pivoting to Enterprise has been one of the best company decisions.

One of the important distinctions between Optimizely and most developer-first platforms is that experimentation is a hard practice to pick up. Most companies have difficulties getting their programs off the ground and keeping them funded, let alone grow or scale them. Small digital businesses struggle more for several reasons: 1) they have few resources, so teams are understaffed and resources are pulled easily, 2) they have little money, so the percentage uplifts are rarely motivating, 3) they have little traffic, so it is harder to get a statistically significant measure in their experiments

Because of these issues, Optimizely always had really poor retention in the SMB space. Nonetheless, the SMB customers helped Optimizely build up a brand name, build up legions of practitioners, and get the skills and experience to go after the Enterprise market. When Optimizely started acquiring enterprise customers, retention improved substantially.

This isn't to say that there aren't lots of problems with Enterprise sales and that Optimizely didn't make tons of cultural mistakes in that pivot. But on the core financials, Enterprise kept Optimizely afloat. The problem wasn't the pivot to enterprise, but the trade-offs that were mismanaged along the way. The path to enterprise was inevitable and correct.

[richardfeynman]

First off, love the username :-).

You argue that pivoting from self-serve to enterprise was one of the company's best decisions. If that were true, Optimizely would be considerably more valuable now than it was four years ago, which is manifestly not the case.

Moreover, if the self serve model was indeed fatally flawed, then it would not be possible for anyone to build a profitable business serving this segment. However, a competitor, VWO, showed that it is possible to build a large, profitable business using this model.

Finally, let's say my prior two arguments are wrong, and the unit economics of the self serve business were fundamentally flawed--an assertion I challenge--the self serve business would still have been useful as a source for attracting future enterprise customers. When Optimizely cut the self serve plans, it also killed its largest source of enterprise deals.

[conductrics]

Are you suggesting that revenues fell after bailing on SMB. That is hard to imagine, but I guess possible. Given that the core of the industry is about asking counterfactual questions, I would think the appropriate question would be 'would they be more valuable now if they had not gone to the enterprise - would they even have the deal they did wind up getting?'rather than are they more valuable now then they were 4 years ago. Hard to know, but my guess is that they wouldn't. A simple web editor with a random number generator isn't going to be of interest to anyone looking to buy. The larger problem is that statistical inference is hard - it just is. And, unlike analytics, where you are just placing sensors into an existing system, here you need to also place actuators, so implementation is much more complicated. That means that at any scale, both the marketing team, and the dev/IT teams need to be involved for anyone to get value and not wind up breaking systems all the time. Software like theirs, and ours, isn't magic, and without good editorial and hard work by the client, the entire exercise is more statistical theater than science. And that material fact was always in conflict with the rhetoric that they make AB Testing easy for everyone. It lends itself to a particular type of solutionism that VCs and the larger industry are prone to be seduced by. Self service to SMB clients might be a profitable biz, but perhaps not enough to service such a large amount of venture funding. FWIW VWO also tries compete at the enterprise.

[richardFINEman]

Richard, I appreciate your theoretical arguments. Consider me the applied physicist who has actually seen the data. :)

On the valuation. Optimizely's pre-exit valuation rose in every VC round since changing the focus of the business from SMB (Series B) to Mid-Market (Series C) to Enterprise (Series D). The valuation of the exit took a hit for reasons that were not the enterprise focus. I could say more here, but consciously choose not to.

The self-serve model at Optimizely was certainly flawed. If VWO was able to build it profitably, that's likely because their labor costs, being based in India, are substantially lower than Optimizely's. Keeping a legion of engineers funded in SF has very different unit economics than keeping engineers funded in India.

Now on your last argument, that self-serve customers could acquire enterprise accounts, I certainly agree. If that strategy were better executed, it could have created a valuable pipeline. But the self-serve to enterprise funnel was sorely lacking, and when self-serve was cancelled, the business benefited financially and migrated everyone to the new pricing model for substantial success.

Its easy to look at Optimizely's final fortunes and link that to the enterprise approach, and I won't argue they're completely unrelated, but there were very different factors that caused Optimizely to fold into EPi's acquisition spree.

[richardfeynman]

Thanks for making these points. They seem less hyperbolic and more grounded than your earlier claim ("it was one of optimizely's best decisions") and I appreciate that change in tone.

You characterize my arguments as theoretical, but they are empirical. Optimizely's valuation didn't increase after the decision to kill self serve was made, and VWO was able to build a successful business without killing self serve.

Also, as you now agree, optimizely would have had a better source of enterprise deals with self serve intact. That's important.

Stepping back, every SaaS business has issues converting self serve users to enterprise. Fixing those issues takes hard work, which optimizely was not willing to do. Similarly, every business has higher churn in monthly self serve plans than annual enterprise plans. Fixing this takes hard work too. Things were not unsolvable, optimizely simply had no appetite for solving them.

To address your other points: 1. I donbt that labor costs would have made a difference, but say they would have. Was anything stopping optimizely from reducing costs to have overseas development in india? 3. Your comments about the various foci at different rounds of funding is irrelevant. I'm not arguing that building an enterprise business is bad, I'm arguing that killing self serve was bad.

Ultimately, as Dan predicted in 2013, Optimizely died of indigestion rather than starvation; the market was always there, and still is.

Hope this helps clarify my position, even if we still disagree. If you send me an email, I'd be happy to help squash your skepticism about the $100k too.

PS. I don't think that killing self serve was the only thing that led to optimizely's demise, but I do think it was a factor.

[ajit_singh]

"Optimizely died of indigestion rather than starvation" while it might be true, not sure if Dan ever admitted anything close to that in public.

[jimbojones79]

I think your argument that VWO is a profitable business, is unknown. VWO is also still private. It could be going through the same issues. Additionally, I'd say that valuations are inherently made up. Optimizely was perceived as having more value previously, it doesn't mean it actually was. When it was serving the SMB space, it had a massive churn in that space.

[hnthrowavay]

>I think your argument that VWO is a profitable business, is unknown

VWO has been profitable since its first month of inception

(throwaway account + I am a VWO employee)

[mrnobody_67]

The big missed opportunity was to build a bounty-based marketplace to serve the SMBs... charge for results vs. the product.

[cutenewt]

Would the bounties be large enough to cover the work involved? I'm doubtful.

[mike_d]

Never dump your prosumer/developer/enthusiast base, no matter what any business expert tells you. Keep them going in parallel.

CROs and VP of Sales types don't like the idea because they can't control the messaging and manage the sales funnel. But if you have people who genuinely love your product and will champion it internally, ignore these fools. Just keep delivering a quality product with value and if there is a market, the revenue will follow.

GitHub, Twilio, and OpenDNS all built their businesses off people taking tools to work.

[porker]

This. Not least because some of us have invested effort in singing your praises, selling you to teams, and used our reputation to promote your business, indirectly benefiting because clients are happy.

I've been burned twice doing this; once with Fastly [0] and the second time with AppNeta APM, which they then dumped as it didn't fit with their "enterprise" portfolio.

0. https://news.ycombinator.com/item?id=22073520

[staysaasy]

I think that this is a great question that isn't asked nearly enough. There are all sorts of stories about companies moving up market successfully, but I'd love to see more written about the cases where it's attempted and failed. The DNA of enterprise vs SMB SaaS is really different.

For what it's worth, I would guess that had Optimizely not pivoted to the enterprise they would indeed be smaller, but more importantly would have had a slower growth rate at least at that point in time. In an industry obsessed with high growth rates that's the kiss of death and I imagine the reason behind their pivot. But that's just my guess.

[reggieband]

> then discover that the self-service offering they've built simply can't satisfy the projections they've made to justify their valuation?

I suspect a lot of startups sell their investors on enterprise from the get-go. Self-serve can be seen as a foot in the door, a way to prospect potential enterprise opportunities. They watch self-serve sign-ups for a bigcorp.com domain and then hand it over to account sales and swing for the fences.

I think a big problem is differentiating your self-serve from your enterprise offering. You don't want bigcorp.com to feel happy enough with your $20/month foot in the door offering. And at the same time enterprises aren't stupid money fountains and they don't just sign $100k/year contracts unless they see major value. I think this creates a volatile business where a dozen or so enterprises make up the lions share of revenue for a startup and the thousands of self-serve customers are just kind of there like background noise.

[lmeyerov]

SMB and grow into enterprise is the easiest path bc can iterate and grow revenue. In theory, similar effort for more revenue initially and more revenue as seats grow.

Problems are often:

-- Beyond just VC, it becomes an issue ongoing to having full-time dedicated sales: quota, qualified leads, etc, it's a beast. Internal culture and priority shift to start/maintain/grow.

-- if not naturally pulled here and no obvious tier separatation, above can easily destroy the SMB side, instead of using as part of your moat + growth. The marketing+sales org will kill it, unless you split those as well or otherwise solve

-- VC money just means artificially faster deadlines and expectations for all of the above, so even harder to do 2 things, even if long term natural and better to habdle

[cj]

I agree with the point you're making.

I think the problem is to become "lavishly funded" means that you need to have a pitch that creates a narrative of how you will reach a lavish level of revenue that is believable.

For B2B SaaS, usually that means moving upmarket and raising prices.

I don't think we can say that Optimizely was necessary wrong in doing what they did with knowing what they knew at the time. There are many examples of B2B SaaS companies successfully starting with SMB, then going enterprise. First company that comes to mind is New Relic ($3.6 billion market cap)

[kirillzubovsky]

To piggyback on this question, I am also curious - would Optimizely choose to go this Enterprise sales route if it weren't for their sky high valuation back in the day. How much of this change was driven by the customers' need vs. a perceived opportunity to grow the company?

[totallynotabot]

You know the answer to this question. Rationalizations may have included lines like “pivoting to enterprise will help us help even more customers” but it’s all about growth and TAM.