News & Views


Pixvana Unveils VR Editing and Production Software One Year After Raising $6M Seed Round

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AWS re:Invent – the Big Announcements and Implications

The momentum continues to build and scale in leaps and bounds. That’s the overwhelming observation and feeling at the end of the 5th annual conference that Amazon hosted in Las Vegas last week for AWS (Amazon Web Services).

Here are some of the key take-aways that we think will have the highest industy impact.

Event-driven Functions and Serverless Computing

Serverless has definitely arrived. As expected, there were a number of new capabilities announced around Lambda, including C# language support, AWS Lambda@Edge to create a “CDN for Compute” and AWS Step Functions to coordinate the components of distributed applications using visual workflows through state machines. Beyond this, it was clear that Lambda, and the serverless approach overall, is being broadly woven into the fabric of AWS services.

In the world of event-driven functions, thinking about a standard way for people to publish events that make it easy to consume those events is going to be critical. Whichever platform gets there first will likely see a tremendous amount of traction.

Innovation in Machine and Deep Learning

AWS has had a machine learning service for a while now, and it was interesting to see a whole slew of new machine learning, deep learning and AI suite of services including Amazon Image Rekognition, Amazon Polly (Text to Speech deep learning service) and Amazon Lex (Natural Language Understanding engine inside Alexa that is now available as a service).

While the concrete use cases are still relatively spare, we – like Amazon – believe this functionality will be integrated into the functionality of virtually all applications in the future.

It is also clear that the proprietary data used to train models are what create differentiated and unique intelligent apps. The distinction between commodity and proprietary data is going to be critical as algorithms become more of a commodity.

Enterprise Credibility

In past years, whether it was intended or unintended, the perception was that taking a bet on AWS meant taking a bet on the public cloud. In other words, there was an unintended consequence of AWS as “all in on public cloud or nothing”. With the VMWare partnership, which was announced a couple months ago, but solidified on stage with VMWare’s CEO, Amazon clearly is supporting the hybrid infrastructure that many enterprises will be dealing with for years to come.

Equally noteworthy was the appearance of Aneel Bhusri, CEO of Workday, on stage to announce that Workday was moving to AWS as their primary cloud for production workloads. Clearly no longer just the realm of primarily dev and test, this is perhaps the strongest statement yet that the public cloud – and AWS in particular – is enterprise production capable.

Moving Up a Layer From a Set of Discrete Services to Solution-based Services

One big theme that showed through this year at AWS was the movement from a set of discrete services to complete solutions both for developers and for operators of applications and services. The beauty of this all is that AWS continues to move forward on this path in a way that is highly empowering for developers and operators.

This approach really shone through during Werner Vogels keynote on Day 2. He laid out AWS’ approach for the “modern data architecture” and then announced how the new service AWS Glue (fully managed data catalog and ETL service) covers all the missing pieces in terms of their end-to-end solution for a modern data architecture on AWS.

Eat the Ecosystem

One of the implications of AWS’ continued growth towards complete solutions is that they continue to eat into the domain of their partner ecosystem. This has been an implied theme in years past, but the pace is accelerating.

Some of the examples that drew the biggest notice:

• AWS X-Ray (analyze and debug distributed applications in production) which aims directly at current monitoring companies like New Relic, AppDynamics and Datadog
• AWS Lightsail (virtual private servers made easy) that, at $5/month, will put significant pressure on companies like Digital Ocean and Linode
• Rekognition (image recognition, part of AI suite described above) that provides a service very similar to Clarifai, who had actually been on a slide just a few prior to the service announcement!

No one should be surprised that AWS’ accelerating expansion will step on the toes of partners. An implication, as @benkepes tweeted, is that the best way to partner and extend AWS is to go very deep for a given use case because AWS will eventually provide the most common horizontal scenarios.

Partner Success = AWS Success

Although some of the new services conflicted with partner offerings, the other side of the coin was that AWS continues to embrace partners and is vested in partners’ success. They clearly understand that having their partners be successful ultimately contributes to more success for AWS. Having customers like Salesforce, WorkDay and Twilio take a complete bet on AWS , making the product of a partner like Chef be available as a fully-managed service on AWS, having a partner like Netflix excited to switch off their last datacenter as they are completely on AWS, and having a company like VMWare embrace AWS as their public cloud partner are some of the great examples of how Amazon is systematically working to ensure that their partners remain successful on AWS, all of which accrues more value and consumption of AWS.


The cloud opportunity is gigantic and there is room for multiple large players to have a meaningful position strength. However, as of today, Amazon is not just the clear leader but continues to stride forward in an amazing way.

First Published by Geekwire.

POSTED IN: Madrona News

Every company is a technology company, but most don’t behave like one

In 2011, Marc Andreesen famously wrote a Wall Street Journal essay declaring that “software is eating the world.” Five years later, the five largest companies in the world by market capitalization are all software companies.


However, in today’s information economy, Apple, Alphabet, Microsoft, Amazon, and Facebook are not the only important large technology companies. As technology becomes more and more pervasive across industries and functions, companies like Exxon, GE, Citi, and Walmart are all racing to become technology companies as well.

Today, we are less interested in the distinction between technology and non-technology companies (because there are very few successful companies that are not technology companies). Instead, it’s more interesting to ask questions like – Tesla is a technology company rapidly learning to become an automobile company, and Ford is an automobile company rapidly learning to become a technology company – which one is going to get there first?

In short, software is eating the world, but software companies aren’t the only ones taking a bite.

How do companies in real estate, finance, healthcare, manufacturing, or other industries that have traditionally not been recognized as technology industries become technology companies? What are some of the key learnings that we see from startups and companies that are successfully making this transition?

1. It starts at the highest level of leadership
Leading a transformation to become a successful technology company is not a job that can simply be tasked to the CTO or CIO. The level of engagement and investment to lead a successful transformation requires the CEO and board of directors to not only be fully bought in but to be the main drivers of the change.

Goldman Sachs has known for many years that technology is a key competitive advantage in financial services. In one recent WSJ article, a top Goldman executive valued a license for their risk measurement system at well over $1 billion, and possibly even up to $5 billion. They have since open-sourced the system in a move to attempt to drum up new business. More importantly, however, Goldman Sachs’ Chairman and CEO Lloyd Blankfein has repeatedly stated that “Goldman Sachs is a technology firm” and highlights the fact that Goldman Sachs actually employs more engineers than companies like Facebook, Twitter, or LinkedIn and often competes for talent and wins against top internet companies.

2. Talent is the most important asset of a technology company
One of the key drivers for the rapid growth of new technology companies is the low capital requirement to build a company today. New companies no longer need to buy hundreds of thousands of dollars of servers and equipment; instead, they can pay for servers on demand from cloud providers when needed.

This dynamic makes it more important than ever for companies to hire great people. In fact, a recent survey Madrona conducted in conjunction with its annual CIO Summit found that 89% of Fortune 500 CIOs say hiring top talent is their number one concern today.

GE has likely made the largest investment in this space to change the story that young engineers and college graduates hear about the company with a series of Youtube videos and television ads. Though it remains to be seen whether these videos work, GE has recognized that filling its talent pipeline with young engineers and technologists is critical and is investing accordingly.

3. Technology needs to be at the core of company culture, not an afterthought
At a company like Microsoft or Facebook, engineering positions are the most prestigious, highest status roles at the company. The founders and CEOs of technology companies are often engineers and may have even built early version of the products themselves.

For companies to successfully make the transition to become a technology company, cultures need to change to take into account the unique way that software development works and to highlight the importance of technology and the people who manage and build it.

One example of a move towards a developer friendly culture is happening at Walmart. WalmartLabs recently open sourced Electrode, the application platform that powers Electrode is a modular platform that helps improve application performance, and Walmart is open sourcing the software to give back to the open source world and benefit from additional contributions from the community.

It is important to keep in mind that building a technology-driven culture is not just about free lunches and massages. As Joel Spolsky CEO of Stack Overflow said in a recent interview, “If you want to attract and keep developers, don’t emphasize ping-pong tables, lounges, fire pits and chocolate fountains. Give them private offices or let them work from home, because uninterrupted time to concentrate is the most important and scarcest commodity.”

4. Companies need to move fast and adopt agile practices
The pace of technology adoption is getting faster and faster every year. For example, it took decades for electricity and telephones to reach 50% of US households, but today it takes only years for new technologies like smartphones and tablets to reach a majority of the population. This underscores the importance for companies to continuously adopt new technologies that can enhance productivity and also to continuously experiment with new technologies that have the potential to be disruptive to the business.blackrock

An interesting anecdote from The Lean Startup, one of the manifestos for startup founders, is that Intuit holds themselves accountable to being innovative and agile by using two key metrics: (1) the number of customers using products that didn’t exist three years ago and (2) the percentage of revenue coming from offerings that did not exist three years ago. Historically for Intuit, it took a new product an average of 5.5 years to reach $50 million in revenue; at the time the book was written, they had multiple products generating $50 million in revenue that were less than a year old.

Particularly, as the world is moving towards cloud computing, continuous development and continuous updates are the name of the game. Agile development practices enable you to continuously deliver better experiences for your customers and waterfall development methodology is a relic of the past.

5. Companies need to look forward and avoid getting caught in the innovator’s dilemma
The classic case for why legacy competitors can do everything “right” and fail is the force of disruptive innovation described in Clayton Christensen’s The Innovator’s Dilemma. Businesses can reject innovations based on customers’ current needs while innovative upstarts develop products in a way that meets customers’ future needs.



Recently, we have seen automakers take very innovative approaches to automotive technology as autonomous vehicles move to the front and center of the startup world with the acquisitions of companies like Otto and Cruise and public pilots of new technologies like Uber’s self-driving cars in Pittsburgh or Tesla’s Autopilot feature.

Ford, in particular, has been very vocal about the autonomous future and the importance of working differently in the context of today’s technology-driven world. Ford’s CEO, Mark Fields, has written that “As little as four years ago, our approach was aligned with the thinking of most automakers today, which is taking incremental steps to achieve full autonomy by advancing driver assist technology. This is not how we look at it today. We learned that to achieve full autonomy, we’d have to take a completely different pathway.”

The race to become the market leader across a variety of sectors and geographies is speeding up amongst older incumbents and promising, young startups. Startups have a lot to learn from the established management and financial practices of incumbents, but incumbents have a lot to learn from startups as well. The companies, young or old, that use technology to best create competitive advantages for themselves will win.

Technology needs to be a fundamental fabric of the company’s DNA and culture as companies truly internalize that “Every company is a technology company”.

POSTED IN: Madrona News

NFL Players Association launches business accelerator with Intel, Harvard, Madrona, others

By Taylor Soper, Geekwire.

For an NFL player, there is a lot more to life than what goes on in between the sidelines on Sundays. Sure, competing in the world’s premier football league is a remarkable achievement. But being a professional athlete also provides numerous business-related opportunities for both current and retired players alike.

Yet for many, the chance to maximize their value and influence — whether it’s inking a marketing deal, investing in a startup, or even joining a company as an employee — can sometimes be a difficult process.

That’s where the NFL Players Association wants to help.

The NFLPA, the union for NFL players, today launched the OneTeam Collective, a new organization modeled after a business accelerator but with its own spin that brings together the power of the NFL with a first-class list of founding partners that includes Intel, Harvard Innovation Lab, Kleiner Perkins Caufield & Byers (KPCB), LeadDog Marketing Group, Madrona Venture Group and the Sports Innovation Lab.

For the full article please go to Geekwire.


POSTED IN: Madrona News

AWS re:Invent 5th Anniversary Preview: Five Themes to Watch

The 5th Annual AWS re:Invent is a week away and I am expecting big things. At the first ever re: Invent in 2012, plenty of start-ups and developers could be found, but barely any national media or venture capitalists attended. That has all changed and today, re:Invent rivals the biggest and most strategically important technology conferences of the year with over 25,000 people expected to be in Las Vegas the week after Thanksgiving!

So, what will be the big themes at re: Invent? I anticipate, from an innovation perspective, they will line up with the 3 layers of how we at Madrona think about the core of new consumer and enterprise applications hitting the market. We call it the “Future of Applications” technology stack shown below.


Future of Applications (Madrona Venture Group Slide, November 2016)

The Themes We Expect at 2016 re:Invent

Doubling Down on Lambda Functions

First is the move “beyond cloud” to what is increasingly called server-less and event-driven computing. Two years ago, AWS unveiled Lambda functions at re:Invent. Lambda quickly became a market leading “event-driven” functions service. The capability, combined with other micro-services, allows developers to create a function which is at rest until it is called in to action by an event trigger. Functions can perform simple tasks like automatically expanding a compute cluster or creating a low resolution version of an uploaded high resolution image. Lambda functions are increasingly being used as a control point for more complicated, micro-services architected applications.

I anticipate that re:Invent 2016 will feature several large and small customers who are using Lambda functions in innovative ways. In addition, both AWS and other software companies will launch capabilities to make designing, creating and running event-driven services easier. These new services are likely to be connected to broader “server-less” application development and deployment tools. The combination of broad cloud adoption, emerging containerization standards and the opportunities for innovating on both application automation and economics (you only pay for Lambda functions on a per event basis) presents the opportunity to transform the infrastructure layer in design and operations for next-generation applications in 2017.

Innovating in Machine and Deep Learning

Another big focus area at re:Invent will be intelligent applications powered by machine/deep learning trained models. Amazon already offers services like AWS ML for machine learning and companies like Turi (prior to being acquired by Apple) leveraged AWS GPU services to deploy machine learning systems inside intelligent applications. But, as recently reported by The Information, AWS is expected to announce a deep learning service that will be somewhat competitive with Google’s TensorFlow deep learning service. This service will leverage the MXNet deep learning library supported by AWS and others. In addition, many intelligent applications already offered to consumers and commercial customers, including AWS stalwarts such as Netflix and, will emphasize how marrying cloud services with data science capabilities are at the heart of making applications smarter and individually personalized.

Moving to Multi-Sense With Alexa, Chat and AR/VR

While AWS has historically offered fewer end-user facing services, we expect more end-user and edge sensors/devices interactions leveraging multiple user interfaces (voice, eye contact, gestures, sensory inputs) to be featured this year at re:Invent. For example, Amazon’s own Alexa Voice Services will be on prominent display in both Amazon products like the Echo and third party offerings. In addition, new chat-related services will likely be featured by start-ups and potentially other internal groups at Amazon. Virtual and augmented reality use cases for areas including content creation, shared-presence communication and potentially new device form factors will be highlighted. Madrona is especially excited about the opportunity for shared presence in VR to reimagine how people collaborate with man and machine (all powered by a cloud back-end.). As the AWS services stack matures, it is helping a new generation of multi-sense applications reach end users.

Rising Presence of AWS in Enterprises Directly and With Partners

Two other areas of emphasis at the conference, somewhat tangential to the future of applications, will be the continued growth of enterprise customer presentations and attendance at the conference. The dedicated enterprise track will be larger than ever and some high-profile CIO’s, like Rob Alexander from Capital One last year, will be featured during the main AWS keynotes. Vertical industry solutions for media, financial services, health care, and more will be highlighted. And, an expanding mix of channel partners, that could include some surprising cloud bedfellows like IBM, SAP and VMWare, could be featured. In addition, with the recent VMWare and AWS product announcements, AWS could make a big push into hybrid workloads.

AWS Marketplace Emerging as a Modern Channel for Software Distribution

Finally, the AWS Marketplace for discovering, purchasing and deploying software services will increase in profile this year. The size and significance of this software distribution channel has grown significantly the past few years.  Features like metered billing, usage tracking and deployment of non “Amazon Machine Image (AMI)” applications could see the spotlight.

Over the years, AWS has always surprised us with innovative solutions like Lambda and Kinesis, competitive offerings like Aurora databases and elastic load balancing, as well as customer centric solutions like AWS Snowball. We expect to be surprised, and even amazed, at what AWS and partner companies will unveil at re: Invent 2016.

POSTED IN: Madrona News

This New Radar System Could Help Make Flying Cars and Delivery Drones a Reality

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Q&A: Apptio CEO Sunny Gupta talks life as a public company, breaking even, and besting the competition

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DiscoverU – Tom Alberg’s Advice to High School Students

Note: As part of The Road Map Project’s DiscoverU Campaign to get high school students to think about higher education, Madrona hosted more than 30 students from Renton High School to learn about jobs in the startup world. Tom Alberg shares this post as his thoughts for students who are thinking about working in the industry.

Here is a link to the DiscoverU website  –

Where did you go to school? 

I graduated from Ballard High School in Seattle. It wasn’t the best high school in the city. All the teachers weren’t great but some were amazing. I was OK in math but not great. I got a C in geometry in high school. But some teachers encouraged me and I decided to work hard to improve so I could get into college.

I majored in government in college and got pretty good at math which I have to use every day in my work.

What do you do at work?

I am a partner in a venture capital firm in Seattle. We don’t have thousands of employees like Boeing. We also don’t build airplanes. But we help create new businesses. Companies that someday might grow to be a Boeing or a Microsoft or an

What do you invest in?

We invest in people — people who have a dream about starting a company and building it into a success. Many of the people we invest in are young – under 30. I call that young.

Many are first or second generation immigrant Americans. Either they or their parents were born in a foreign country. The CEOs of at least fifteen of our fifty companies are first or second generation immigrants.

Every day someone comes into our office with an idea for a new company. We meet with over 500 every year.

Today we have over 60 active startup companies we have invested in and are working with to help them grow.

What does it take to start a company?

First, you need an idea to start a company.  Hopefully, it’s a product or service that people will want to pay for.  Some years ago, I met a young person who had an idea about selling books on the Internet.  His name was Jeff Bezos and the company was Amazon.

Everyone has an idea for a new business.  Some are good and some are not as good, but give it a try.  How about delivering lunches for $11 from restaurants to people in their offices.  We have one of those.  It’s called Peach.  You may have a better idea.  Is there something you are passionate about?  Maybe there is business idea involving your interests.

Do you need a team?

You need to be able to build a team. One person can’t do it all. This is the same as a winning basketball or football team. You need people with different skills who can work together. You do that every day when you play a sport or complete a group project – you know who is good at what and sometimes you push your friends to do stuff they don’t like. We can all learn to do new things

You need to be persistent even when people tell you that your idea or even you are crazy.

Does it take hard work to build a company?

To build a successful company you need to work hard and learn. Jeff Bezos had done a lot of work to analyze the book market and the Internet. He was open to new ideas. He also listened and learned as built his company. The first company name he picked was Abracadabra but someone told him it sounded like Cadaver so he renamed it Amazon. You need to learn from others.

I visited the University of Washington recently and met with two young students who are trying to launch a company that is using virtual reality to visualize organs inside the human body. I was able to grab a heart, rotate and examine its insides – all visually of course. They are working with local doctors and hospitals to test it. They call their company CadaVR – I thought it was pretty cool.

2016-10 Tom Alberg - Hay Truck

Summer job  – Loading and unloading hay

What size are your companies?

Our companies start out small. One or two people working hard with an idea. They don’t need a lot of money at first. If they have a product or service that others want to pay for, then they will need more money to grow. And they come to see people like us. Or ask their friends and co-workers to invest.

What do some of your companies do?

Our companies include Redfin, which sells homes through the Internet, a restaurant delivery business, two companies that are developing products for virtual reality, a drone company that lets people at home pilot a drone from afar, a company that will deliver gasoline to your car in a workplace parking lot or mall, a company that helps you take care of your pets, and a company that sells men’s clothing over the Internet that is tailored to your measurements.

We also start companies in our Madrona Labs. Labs has six full time employees and is run by a UW grad. We’ve been lucky to work with him on multiple companies from the time was an undergrad. He started companies while still at the UW to make some money. He then went on to run and start other companies and now he is working with a team to come up with a lot of ideas to test out.

Who do your companies hire?

Our companies hire lots of UW grads. Some majored in computer science. Other pursued business courses, sales, marketing, graphic design. It takes all kinds of skills. I would love to have you major in computer science but whatever your interest, work hard at it, be persistent.

How do you see the future?

You are growing up in an exciting time. New inventions are happening every day. Some are being invented at big companies. Like Amazon. Others like Facebook are big now but started in a dorm room. There are hundreds of small companies right now in Seattle that could be the next Amazon or Facebook.

Whether you are interested in a big company or a small startup, there will be lots of opportunities for you. For a good job, however, you are going to have to finish high school. And increasingly jobs in the future will require that you go to college or to a community college to learn specific job-related skills.

Because of all the opportunity I see for you, I would be happy to be starting over.

POSTED IN: Madrona News

Julie Sandler Named Partner at Madrona Venture Group

Firm also promotes Daniel Li to Senior Associate

SEATTLE, WA – January 12, 2017 — Madrona Venture Group, an early-stage venture capital firm based in Seattle, today announced the promotion of Julie Sandler to Partner and Daniel Li to Senior Associate.

Sandler has led investments in several companies including Integris, Poppy, and Julep, serving on boards across the Madrona portfolio as a board director and observer. Sandler is a prominent voice in the Pacific Northwest startup ecosystem supporting entrepreneurs, founders and students.

“Julie is invaluable to our team. Her strategic, analytical and passionate approach makes her a champion for entrepreneurs and at the same time a steward for our investors,” commented Tim Porter, managing director, Madrona Venture Group. “She dives in and does everything it takes to help founders succeed, and this hands-on approach exemplifies what we strive for in all our companies. She embodies the Madrona culture, and we are excited to recognize her with this promotion.”


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Finance and Technology Leader, Hope Cochran, Joins Madrona Venture Group as Venture Partner

Former CFO of King Digital and ClearWire Brings Management, Operating Experience to Venture and Startup World

SEATTLE, WA – January 12, 2017 – Madrona Venture Group, an early-stage venture capital firm, announced today that Hope Cochran has joined the firm as Venture Partner. Cochran brings a deep wealth of knowledge based on her experience as an entrepreneur, board member and CFO of public and private companies. As Venture Partner, Cochran will help identify new investments, provide strategic and operational advice to Madrona portfolio companies, and foster corporate and strategic business development relationships with larger companies and investors.

“I’m excited to jump back into the startup world and work directly with exec teams at some of the most innovative companies in the technology industry,” said Cochran. “Madrona is a leader in the community and I’m looking forward to being part of the team that helps their portfolio companies realize their full potential.”


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Madrona Venture Group Names S. Somasegar Managing Director

Experienced Technologist, Executive and Investor Expands Role

SEATTLE, WA – January 12, 2017 – Madrona Venture Group, an early-stage venture capital firm, announced today the appointment of S. “Soma” Somasegar to the role of Managing Director.

Soma joined Madrona in November 2015 as a Venture Partner, following a more than twenty five year career at Microsoft leading the company’s Developer Division and responsible for the Visual Studio and .NET family of products that enable tens of millions of developers to build applications and services for client, server, mobile and cloud platforms. Soma was also responsible for Microsoft’s R&D labs in Boston, China, India and Israel.

As a Venture Partner at Madrona, Soma became a powerful voice at the table on key investment areas including Machine Learning/Artificial Intelligence, Virtual Reality/Augmented Reality, next generation cloud infrastructure and intelligent applications. Soma led investments in Shyft and CloudCoreo, and he is also the Board Chair at Pixvana.


POSTED IN: Madrona News

Kids can now program Wonder Workshop’s Dash and Dot robots through Swift Playgrounds

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VR/AR – Escaping the Trough of Disillusionment

The Persistent Desire for Virtual Reality  – The desire for virtual reality is no new revelation. Since the renaissance times artists have played with panoramas, depth, and other tools of perception to create illusions that are virtually or “almost” real. 


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Igneous Systems Turns On-Premise Storage Into A Cloud Service

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Cloud-computing vets draw $3 million for CloudCoreo

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CloudCoreo Joins the Madrona Family

(L-R Jason Needham, CMO; Paul Allen, CTO; S. Somaseagar, Venture Partner; Tom Hull, CEO)

It is a lot of fun for me to announce our investment in CloudCoreo and to welcome the team to our Madrona family. Again.

We have had a great experience working with Tom Hull and Jason Needham through the Union Bay Networks journey, and we have been super impressed by Paul Allen’s insight, understanding and passion about how to bring together deployment and monitoring for security and compliance as one closed loop system. We believe this is essential for businesses to manage their cloud operations as cloud infrastructure continues to change significantly.

As the cloud infrastructure world embraces micro-services and containers to build and deploy at-scale distributed services, a comprehensive devops solution that enables companies to automate and secure the entire cloud operation across multiple cloud and hybrid cloud environments is a must-have solution.  CloudCoreo is doing just that and has already proven itself to be an invaluable product for many of its early customers.

We are thrilled to back the compelling vision of this leadership team and be part of a world-class cloud infrastructure and operations focused startup in Seattle, the “Cloud Capital” of the world.  All of us at Madrona are jazzed at the potential of what is possible here.

Additionally, we are excited to partner with the folks at Divergent Ventures, Aritstos Ventures and notable angels that provide a variety of complementary experiences, expertise and connections as we embark on this journey.

Looking forward to a fun, impactful and at-scale journey with the CloudCoreo team!

POSTED IN: Madrona News

10 Lessons from 1-year in a VC Growth Role

One year ago I took advantage of a rare opportunity by accepting a ‘growth role’ at a venture firm. My job is to help our portfolio companies grow and this has given me a unique vantage point to witness the difference between successful and unsuccessful companies when it comes to growth marketing.

One thing that surprised me is that there is so much in common even when looking at companies at different stages or with different types of customers. Closely monitoring cohorts, for example, has proven to be just as important at a B2B company like Smartsheet as it has been for a company selling to consumers like Rover. An attribution system that links pre and post-purchase data is crucial to the success at a mid-stage company like Bizible just as much as it is at a later-stage one like Redfin.

Here is more information on those two and other lessons I have learned both from the Madrona companies I partner with as well as my prior experience in growth roles at zulily, Microsoft, and Blue Nile:

1. Invest in Data Collection Early On
A common mistake I see is when a company implements the basic version of Google Analytics and thinks they have their analytics needs met for the foreseeable future. While that approach may help spot some high-level directional trends, it does not allow a company to identify micro trends that can be catalysts for future growth. While at Microsoft in charge of selling subscriptions to Exchange Online in the pre-Office365 days, we invested early in a data warehouse and were able to dive into pageview and purchase behavior to identify the content with the highest conversion rate. Using our data warehouse, we found that a particular case study was 5x as correlated with buying vs. other types and promoted it more heavily as a result. The good news for marketers today is that there are analytics tools available that can be setup much more quickly and affordably than in the past. I am a fan of both Segment and Alooma for event tracking / data pipelines and Redshift as a data platform.

2. Link Pre and Post Customer Data
Many people are surprised to learn that at zulily we had a CAC target in one program that was 50x as high as a target in another. For a time, both were a part of our mix as we could use them to acquire customers for less than they were worth. The reason we could operate this way is that each ‘member’ we acquired was tagged with specific details about where they came from enabling us to monitor their value throughout their lifetime. We did this not only at the program level, but also even more granular like by keyword in paid search. Where I’ve seen companies miss in this area is having a uniform CAC target. In the zulily example, that would have likely resulted in overpaying for the lower-quality traffic and eliminating the higher-quality one. SaaS companies I work with are able to do similar as they can see the traffic sources for buyers and then see which of them led to the stickiest and most satisfied customers over time. Often times programs that are more expensive end up being the stronger performers over time as the long-term customer value is greater than other programs that can deliver cheaper initial customers.

3. Look at Cohorts in Multiple Dimensions
Looking at customers in cohorts is a great way to measure performance and it is great to see an increasing number of companies doing this. Cohorts can be especially valuable in businesses with high repeat or engagement rates as well as subscription companies that need to closely monitor churn. When I do cohort analysis myself, I like to look at two different styles: time-based and behavioral.

A time-based cohort chart like the one below shows the cumulative value of customers based on the time they were acquired. This type of analysis lets you compare groups to see if they are getting more or less valuable at comparable points in their tenures. In this case, you’d notice a few weeks in that the December 2015 was under-performing:

time cohort

time-based cohort measuring cumulative demand over time

Behavioral cohorts normalize for time and instead look at different characteristics of customers. A few examples of this type are: whether customers came from paid or unpaid sources, which customer segment they belong to, or which device they signed up with. In the chart below, you’ll see values across different programs — let’s hope ‘Program E’ were very inexpensive to acquire!

behavior cohort

behavioral-based cohort measuring cumulative demand of different segments

High-performing companies look at both of these styles often. One of our companies, ReplyYes, noticed in their time-based cohort view that a recent month was trending lower very early on in their tenure. They then looked at a behavioral-based cohort and noticed that a new segment they had been experimenting with was not as valuable as their traditional customers. They quickly made optimizations and saw future cohorts look better as a result.

4. Think of Growth as a Cross-Functional Effort
One of the benefits of tech businesses is the speed of iteration that can be possible. A company can launch a test, see the results, and iterate until they identify a statistically-significant improvement to a key metric. Where this falls down is when all of the steps in this process fall on the shoulders of a single individual (often a head of marketing). A better approach is to look at opportunities like this cross-functionally where developers, UX designers, product managers, and marketers work together toward a shared growth goal. New landing pages and onboarding experiences in particular can lead to step-change style improvement and are most successful when multiple disciplines contribute their complementary strengths.

5. Don’t View Marketing Programs in Silos
With all of the noise in the marketplace, acquiring and retaining a customer can be a very complex system with many unanticipated consequences. Rapidly increasing the quantity of leads can lead to a decrease in the customer experience and effectiveness of retention programs. Increasing the scale of one acquisition program can have significant impacts (both positively and negatively) on other acquisition programs. For this reason, the most effective companies start with what I call a ‘universal source of truth’ metric (like new customers or total revenue) and work backwards to see which programs and tactics are contributing to it.

A common misstep on the acquisition side is to look at pixel-based conversions in individual programs. Individual marketing programs can appear to be hitting ROI targets when doing this even when the overall business struggles because of double or triple-counting the same conversion. A common pitfall I see caused by this approach is over-investment in retargeting programs that look fine in isolation but often times do not when looked at more holistically. To avoid this, start with the total orders or customers and don’t be afraid to A/B test retargeting in particular to see its true impact.

6. Understand ‘Pull’ and ‘Push’ Customer Acquisition Programs
An exercise I like to go through with companies is to classify their acquisition programs based on the customer mindset at the time someone learns about their offering. Doing this tends to group programs into what I call ‘pull’ and ‘push’ marketing. Pull marketing is when customers know about the category and actively seek out solutions on by asking their friends / colleagues or by searching on Google or a vertical-specific directory. Push marketing, by contrast, is when customers are doing other things, but learn of an offering because it is ‘pushed’ to them (like in a newsfeed). Many companies are able to succeed with both types, but typically one will be dominant.

A service or product where most of their marketing is ‘pull’ will often have lower margins. Here it is important to focus on things like page load time and testing different parts of the funnel as small improvements can have a large impact on performance. Alternatively, when ‘push’ is dominant, storytelling becomes more important which increases the need for a strong PR presence as well as high-quality ad copy and landing pages. Even if you are growing nicely due to success in one style, I still find it valuable to keep testing both as a healthy mix tends to lead to the best outcomes over the long run.

7. Explore Offline Channels
Though most people I work with allocate the majority of their media budget to online channels, I see many of the faster-growing ones having some success offline. Succeeding with offline channels will require flexibility when it comes to attribution, but the cost can be lower and it can be a good way to stand out from what can be noisy and competitive online channels. Apptio in our portfolio has succeeded with direct mail and at one time it made up a quarter of their pipeline. On the consumer side, Indochino has been having success with podcasts and at zulily we scaled up quite a bit with TV advertising. If you decide to test offline programs, keep in mind that they can be slower to get started and have higher initial testing budgets compared with online programs so be patient and plan ahead.

8. Be Careful of Unrepresentative Early Customers
As I noted earlier, it is important to invest in analytics early to best understand how customers are reacting to your product or service. An important second piece of this is to make sure that early customers are representative of the types that you will see later on at larger scale. I have seen this lead companies astray when a disproportionate number of early users come from people they already know. An audience of your friends and family can react much differently than a more general audience, so I recommend that companies have a mix of paid and unpaid even in the early days. Doing so and comparing performance across different segments (like in #3) will help you understand how users are reacting in more predictable ways.

9. Don’t Assume Program Performance Will Scale Linearly
Hearing about a new successful acquisition program is one of my favorite parts of my job, but I’m careful to tell marketers who have found something not to be complacent. Problems can arise when people believe performance will continue at the same rate into the future and at greater scale. Increasing competition can cause performance to suffer in addition to declines caused by reaching larger and less-targeted audiences once campaigns get larger. Rather than assuming initially strong performance will continue, I recommend taking a more cautious view that individual programs will get harder and more expensive at greater volume. Doing so will lead to fewer surprises down the line and should also encourage people to stay hungry for new programs.

10. Be Open to Different Levels of Experience in Growth Leader
There is no clear date for when the era of growth marketing began, but many point to 2012 when Sean Ellis coined the term ‘growth hacker.’ Facebook is used as an early example of some of these principles in action and it opened its membership beyond college students only in 2006. Since we are now in 2016, it pains me to see when companies seek out someone with 10+ years’ experience to run their growth team. People who are curious, analytical, fairly technical, and can work cross-functionally tend to be most successful in growth roles and I have found those qualities in people with a wide range of experience levels.

This list is only a start as growth marketing is a rapidly-changing field that is only just beginning. I’m excited to learn more about the successful growth strategies that emerge and whether they fit into this list or are completely different.

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