- The speaker shares their experience working for Tandem Computers in 1989 and their current startup.
- They founded VMware in 1998, which created virtualization software that allows multiple operating systems to run on a single computer.
- The company grew rapidly, with a run rate of $2 billion and 54% year-over-year growth.
- The speaker discusses the founding team, their office space, and the integration of their family into the company.
- Funding-wise, they initially self-funded and then sought angel investors who understood the technology.
- They later secured investment from Dell and strategically chose partners in the hardware industry.
- The speaker mentions their decision to hold their valuation during the dot-com bubble and successfully closed a funding round with Dell.
- They highlight the challenges of being a Linux company and the support they received from Michael Dell.
- The speaker emphasizes the importance of finding a feasible first milestone that creates value when pursuing a big vision.

- The speaker discusses the process of developing a virtualization product.
- They aimed to create a desktop product that would allow running Windows on Linux and vice versa, without requiring any changes from operating systems or chipset vendors.
- The product was launched as a Linux tool and gained attention from Linux companies.
- The pricing model was based on trust, with a free trial option and different prices for commercial and hobbyist use.
- They faced challenges in marketing and PR but managed to generate press coverage, including in the Wall Street Journal.
- They filed patents to protect their technology, but the patents didn't provide significant benefits.
- Microsoft bought a company that had copied their product, leading to a lawsuit.
- The speaker sought a board member who could help navigate the challenges posed by Intel and Microsoft, and convinced Larry Sonsini to join the board.
- The speaker had a positive meeting with Sonsini and was successful in getting him on the board.

- The speaker discusses the importance of having the right people on a board of directors.
- They talk about their experience launching a product and selling it online.
- They faced skepticism about entering the enterprise market but found success by partnering with hardware vendors.
- They share a story about a lucky break with IBM and how it helped their server market take off.
- The speaker emphasizes the importance of creating a product that people love and finding success in the market.
- They express gratitude for the positive feedback they have received and wish good luck to those starting their own startups.

- The speaker worked for Tandem Computers in 1989 and now runs a startup.
- They founded VMware in 1998, which created virtualization software for running multiple operating systems on one computer.
- VMware grew rapidly, with $2 billion in revenue and 54% yearly growth.
- The speaker discusses the founding team, office space, and family integration.
- They self-funded initially and then secured investment from angel investors and Dell.
- Challenges as a Linux company were overcome with support from Michael Dell.
- Finding a feasible first milestone and creating value were important.
- The process of developing a virtualization product is described.
- The product launched as a Linux tool and gained attention from Linux companies.
- The pricing model was based on trust, with free trials and different prices for commercial and hobbyist use.
- Challenges in marketing and PR were overcome with press coverage.
- Patents didn't provide significant benefits, and a lawsuit was filed against a company that copied their product.
- A board member was sought to navigate challenges with Intel and Microsoft.
- The importance of having the right people on a board of directors is discussed.
- Launching and selling a product online is described.
- Success in the enterprise market was achieved through partnerships with hardware vendors.
- A lucky break with IBM helped the server market take off.
- Creating a product people love and finding market success are emphasized.
- The speaker expresses gratitude for positive feedback and wishes luck to other startups.

I've been in this auditorium once before.

It was 1989 and I was working for Tandem Computers, which was 1 of the biggest companies in Silicon Valley.

And the very wonderful, irreverent founder, CEO, was holding an all-hands meeting.

And I was in the audience as a software engineer.

The first 1 was a low bandwidth streaming video company, the extreme that Microsoft bought was the basis for their movie player and came out of a Silicon Graphics internet television project.

And then I'm doing a startup right now, which I'm not going to talk about.

And then The second startup I co-founded was VMware, and I'm gonna try and sort of tell you a little bit about how we got going on VMware and how that company started.

Just by way of background, we founded the company in 1998.

It's virtualization, we created sort of the virtualization industry and what it is It's a layer of software that sits between the hardware and the operating system kind of fakes out the operating system to think it's running on the hardware, lets you run multiple operating systems that can be moved around on a single computer or across computers.

And works on desktops and servers and increases efficiency, makes things easier to use and so forth.

We had year-over-year growth of 54%, About 6,000 people in offices all over the world and it continues to be an even bigger company today Okay So 1 thing we did when we started VMware was we had a big vision Okay, and and to lessen constraints and facilitate innovation for other system builders as well as end-to-end users of computers.

We said it would be ubiquitous by the year 2000.

We missed by a good 6 years or so, but we did make it ubiquitous.

And then we had some students leave school on us, so we had a goal of getting them to get their PhDs, and interestingly enough, 1 of them, after getting married, having 2 kids in grade school, went back to Stanford and finished his PhD and he's a professor in Switzerland now.

This was our founding team minus myself, I took the picture.

And it has my husband who's a professor of computer science at Stanford, 2 of his graduate students Ed and Scott, and then my husband and I met at UC Berkeley in graduate school, computer science, and the other person came from there, and then 1 was there, was employee number 1.

He is a undergraduate working on the research project, and I'm proud to say that he has gone on, founded his own company, which Google recently bought.

And Just for historic reasons, for those of you that are local, this was our first office over the cheese board in Town and Country Shopping Center.

And I know people are paying upwards $5, $6 a square foot today.

We were a little luckier, it was $1.75 when we got our first office.

And 1 little bit of advice, we made sure we had desks to sit at, but we didn't really spend much on fixing up the office.

I brought in an unbelievable office manager.

She was more like the chief operating officer when we were about 10 people and that's when we fixed up the office.

1 other thing worth mentioning about us and our founding, once we had decided to found the company, I became pregnant with our second child and so I wasn't planning to take the company all the way I said look I'll get it off the ground I know how to do a startup but I just having my second kid but it ended up you know for All the family people in the audience, it worked just great.

It actually, I would have left if it wasn't working.

My daughter was jumping for joy when I told her I was about to do a third startup.

So it couldn't have been too bad for her.

Like our son's fifth birthday, we moved from this office to another, and we rented a pickup truck, which was, of course, his dream to get to drive a, you know, sit in our lap and drive a pickup truck.

Funding-wise, what we did, we self-funded initially.

We said immediate family could put in money, but no friends.

We weren't totally, I mean, it took us many hours the first time, I think about 4 hours to boot Windows on Linux the first time.

And I was a little nervous that we were gonna get the performance down.

But, and then once we convinced ourselves that this was really gonna work, we went out for angel money, and we very carefully chose our angels to be people that were very technically sophisticated that would understand what we were doing.

It was Andy Bechtolsheim, John Hennessy, and David Sheridan.

And because they understood it so well, it only took a phone call really, which is how a lot of angel investing, I think, happens.

And then once we got a little further along, once we got into the market, we decided we need a more runway.

We would take some more money, and we'd do a real outside round.

And we decided we were selling product at that point, desktop product.

And so we thought, well, let's get some partners to invest in us, because they'll be strategic.

And so we decided that, since we were going to start out on the workstation, we were going to go into the server.

Once we got into the server, that would be a really difficult market to go into.

So let's get the hardware vendors to invest in us.

So we went and then we thought, well, it's IBM, Dell, or HP.

And we thought IBM and HP could build software, so they wouldn't be good partners in the long term, perhaps.

Today, they do do software, but back then, there was no chance they were gonna do software.

And so we went to Michael Dell and convinced him to invest in us and take the lead on a round.

And actually we were going through that round, this was in 2000.

And it was sort of the height of the bubble.

And some VCs found out we were doing a round, some really great VCs, and they said, what are you doing?

We'll give you a, you know, and we said, well, we're going to, we decided we would keep the valuation where it was.

They were willing to take it higher, but we knew we wanted to go public.

We didn't want to ever risk a down round.

We believed the bubble was going to burst.

And so we held our valuation, and I kept, I didn't tell Dell that we were doing, doing, looking at doing VCs.

And we moved forward with the VCs and then in April of 2000 the bubble burst and the VCs called up and said we're going to have to halve your valuation.

Everybody's halved their valuation now and we were able to say no, we don't need to do that and we closed the round the next day with Dell.

It's just sort of keep your options open.

And we, what was I gonna say about the funding?

Oh, I was gonna say that we were, So I'll get to how we launched and how we got our first idea, but I'll just mention that people were running Windows on Linux with our product.

And Michael Dell, who was our lead investor, was quoted in CNET as saying, I invest in lots of Linux companies.

None of them are ever gonna make a profit.

And when you're an entrepreneur, you just don't like seeing that in the press about your company.

The downside of non-professional investors, you know.

So Okay, so we had money, we had a place to live, and we were building our product.

And this virtualization, there was a lot of very deep technology that we had to do, but we had to figure out what we're gonna be our first, you know, when you have a giant vision, the thing you wanna do is find a very doable first milestone that creates value for somebody.

It could be another company, it could be a ideally a customer, but it doesn't have to be a customer.

So what smaller thing could we do rather than our big vision?

And we thought, well we had this x86 virtualization, you know, It would be a really great way for someone that was running Linux.

There were a lot of developers using Linux back then.

Linus Trevals had not quite yet been on the cover of Time though.

And so we would build a desktop product that would let you run Windows on Linux.

And that way we would, we could also let Linux run on Windows and we figured that way we could use the Windows device drivers and not have to build every device driver that a PC needs, and we wouldn't have to go into the server market.

And We also had a rule that we couldn't have a dependency on anybody.

So we didn't want to require Intel x86 architecture to make any concessions for us, cuz that would give them a lot of power over us.

And we couldn't require Microsoft to make any concessions for our software to run because they would obviously have complete control over us.

So we set out to build this desktop product that would run Windows on Linux or Linux on Windows but require 0 change from any operating system or chipset Vendor and it had to have adequate performance as someone would want to use it and we sort of set that as our first First milestone and so we kind of got it working and we said, okay, how do we take it to market?

We'll take it to market as a Linux tool so that when you want to run, back then everybody that worked in a company had to run Microsoft Outlook, Microsoft Office, but they wanted to live in a Linux world, so this was the way to do it without having to have more than 1 computers or having to dual boot.

And then the Linux community would be a very technical, friendly community for us.

We had 3 Linux companies come to us and try and buy us.

And we didn't know how much we could charge for them.

And so we said, well, we'll just put the beta up there.

And they can renew it every 30 days if they want to go through the hassle, because we really weren't sure anybody would pay for it.

And then we said, well, if you use it commercially, if you're using it in a company, you should pay $299.

And if you don't want to have to renew every 30 days and you're just a hobbyist, you should pay $99.

We didn't know how it would work, but we just put it up on the internet like that.

And we had to figure out how to spread the word when we launched this thing.

So we decided we would go to a conference that launched Startups Demo.

Somebody told us we needed to hire a marketing person to help us get into demo.

And at demo, you can either be on stage or you can just have a little, well, everybody gets a table, but you have to audition to get on stage.

And actually, We couldn't even recruit a PR firm at the time.

Everybody thought this was such a bad idea.

But, you know, because this was when Webvan was out there, toys.com was out there, pets.com was out there.

So, Anyhow, so we decided we would launch our product at demo.

We didn't hire this marketing person and we did it ourselves.

We had a great, we had a funny audition because we had 2 computers we brought in.

And we had 1 was a backup in case the thing didn't work, and I'm sitting there with the 2 founders and the women were auditioning for, and all of a sudden the founder just froze the keyboard up in the air.

And I'm like, I wonder what that was about.

I keep talking away about all the ways you could use this.

He gets his keyboard up, and it's working.

And what had happened was it had crashed, and he wanted an excuse to switch computers so he pretended like he had dropped his keyboard.

But we got on stage and we actually got, it was a really wonderful experience, we got a standing ovation because we did the Windows blue screen of death, but we hadn't really crashed the computer, we had just crashed the virtual machine, and we switched into a new window, and that got a standing ovation.

So we did demo, we did Slashdot, which was where all the Linux developers exchanged information We got slash dotted and then we decide not to spend any money on marketing But but to get peak public relations to get press because we thought it was interesting enough and it worked we got a lot of great coverage including in the Wall Street Journal.

Actually what happened was when we launched our beta, we were very frugal and we didn't have enough bandwidth.

We launched it on a Sunday, we had announced we would launch it on Monday.

And so many people came to our site in the middle of the night to download our product that our We ran out of bandwidth and and the RISP wouldn't give us any more bandwidth automatically So a kid at Cornell a sophomore at Cornell Took our site and and hosted it at Cornell and posted a sign, don't sue me VMware, I'm keeping track of everybody that comes to your site, but your site is down.

So he hosted us until we could get back up and running again.

And he came and interned with us after that.

We started working on patents from day 1.

When you sit in between Microsoft and Intel, you sort of want to try and protect yourself with IP.

I have to say, a little startup, it's pretty hopeless to protect yourself against a monopoly because they can afford giant legal bills and you can't.

I can't say, even though they were pretty rock solid patents, they never really helped us that much.

But anyhow, Microsoft actually bought someone that had copied us, and we weren't going to ever sue them because we knew we were going to beat them.

But then when we found out Microsoft was trying to buy them, we decided to sue them because certainly Microsoft wouldn't buy a company that was Violating our rock-solid patent, but we were wrong Anyhow, but we but it still took it actually ended up slowing Microsoft down because that company's code wasn't very good and Microsoft tried to use it.

When I went out to look for a board, a board of directors, since we had sort of self-funded and we had had the angels, we just sort of had our own internal board.

And then we finally said, well, we should get some external people.

And again, we did have a lot of trepidation about wedging ourselves in between Intel and Microsoft.

And so I kind of went out and looked for sort of who I thought was the best able to help us figure out how to stand up to those guys.

And Larry Sonsini was the managing partner of Wilson Sonsini and pretty powerful attorney, business-minded attorney.

So I decided he needed to be our board member.

If you have a good reason for someone to help you that goes beyond the fact that they're rich and powerful, you can generally convince them.

I told a lawyer at Wilson-Sonsini that we would move to their law firm if I could have a meeting with Larry Sonsini.

I sent him a bunch of materials over before I arrived about what we were doing and went into his office, you know, and I wasn't sure I wanted him on my board, but he smiled at me and asked how he could help, and I thought, yes, I want him on my board.

I said, I'd really like you to join my board.

He said, oh, he laughed and said he was busy getting off boards.

And I said, well, let's talk about the company.

And so we started talking, and we started talking about, we had had at that point quite a history with Intel around working with, shall we say they were interested in our IP and we were not about to give it to them.

And there was some, a lot of discussions going on.

And so I was talking to him about this and I was talking to him about some things that were already going on with Microsoft.

And he was really interested and he, and then it was late Friday afternoon, I left.

He said he'd let me know and I came in Monday morning at 7 AM and there on my voicemail from 6 in the morning was this voicemail from Larry Sunsini saying he would join our board.

He was just an invaluable board member because he had seen every deal in the world and you know knew how to negotiate these things.

And then from there I added some other board members but I think a board can be really, really helpful to you if you get the right people.

Let's see, so we basically, we launched our product.

When we started selling it, we just sold it over the internet, we supported it via email and so on.

We were very frugal and we were cash neutral and we were international.

So now I'm going to just talk a little bit about the enterprise market because it's sort of daunting to go into the enterprise market.

And in fact, I remember 1 of our top engineers left.

He said, you're not going to be able to get into the enterprise market.

And I remember talking to 1 of the better known tech bankers, and he made fun of us.

He said, you can't make it in the enterprise.

You can do these things, but you really got to build up your credibility, and you really got to play the wind shifts to get there.

We couldn't possibly build out an enterprise sales force.

And we should go to market with the hardware vendors.

And we found a way that we could help the hardware vendors make money.

So basically, IBM at the time, and Now IBM had invented virtualization back in the 60s.

It had completely died out, cuz people thought it was something for big mainframes.

But they got what we were doing, and IBM had some huge x86 servers, PC servers, that they were having trouble selling because nobody had a workload that was big enough to need such a big server, but these big servers were very high margin.

So they, So we were talking to them, we were talking to HP, we're trying to convince anybody that would listen to us.

And people, just to make a point about how little people listen to us, we were trying to talk to all the analysts, like Gartner and Forrester and everything.

And 1 day, we had 1 marketing guy, he runs into my office, he goes, we finally got a meeting with Forrester.

It's at 9 o'clock tomorrow morning in Boston, and I, you know, we were in Palo Alto, and I'm like, okay.

So we get on the red eye, and we go out to Boston, and we come into Forrester.

We're so excited to have the audience of an analyst.

And the person they sent in was covering the auto industry.

It was just like, nearly jumped at him, but I didn't.

I proceeded to tell him what virtualization was.

But anyhow, so finally, we were trying to get these hardware vendors to work for us.

And what happened was an IBM fellow comes knocking at our door.

We hadn't launched our server product yet and he says I've been looking at your desktop product I think it would be great on 1 of our servers as a way to help sell them.

We'd only been talking to the marketing people.

So we said, oh, come into our labs and we showed him, you know, we had been building it from day 1 and it was working.

And so we got our partnership with IBM going And then we did this, created this sort of artificial VMware preferred hardware vendor program, and set a deadline, and put a bunch of requirements on it.

And all the other hardware vendors signed up by that deadline.

I'm not sure they knew why they were signing up, but having a deadline helps in almost everything.

And so we were able to start selling with the hardware vendors.

And it's an interesting sort of story how we got going with IBM.

It's sort of startups are 1 lucky break after another, and the game is to put yourself in position to take advantage of all these lucky breaks.

And So what happened was IBM was gonna resell our product, but we used Linux as a way to get going, to kind of boot.

And then Linux got out of the way and then our software took over.

And IBM's lawyers discovered that we had GPL Linux software in our distribution.

And they killed the whole deal because they were afraid it would pollute everything and all of IBM's software would suddenly have to be open sourced and they didn't want to risk that.

And so we were like, oh no, how are we ever going to get anyone to help us sell our product?

And then we had this idea and we said, well what about if your resellers sold us?

And they said, no, our resellers can sell you without it causing any problems.

And what ended up happening was they were about to have their worldwide conference of all their top-tier resellers in the world.

By the way, apologies for all of you that are in consumer and don't care a bit about the enterprise, but it's sort of an interesting story.

All these resellers, it's just all over the world, these are the best trained people at selling this kind of product.

And they invited us to the conference, they let us keynote, they let us run training sessions, and after that our server market took off.

So it was kind of a lucky break to be able to do that.

The thing I wanted to close on, and I couldn't believe it, I experienced it here today, I was walking around having a piece of pizza before I came inside, and somebody grabbed me and said, are you the founder of VMware?

Thank you for your product, I love your product.

And I mean, that hasn't happened in a few years, so thank you.

But anyhow, that's really what it's about is bringing something to market that people absolutely love and You know makes their lives better, and I just thought you know this was my favorite email we ever received Congratulations for that it made it amazing product.

I think it's the best discovery after landing on the moon.

The only thing I can't believe is why is it beta?

Other software, we knew they meant Microsoft, isn't that stable in an N version?

And somebody else said from Germany, I can't believe it, your brains must be bigger than Volkswagen's.

And then this incredible article that the Wall Street Journal did about bringing freedom of choice to the desktop.

It was just such a wonderful fun experience To do you know to to bring something so useful to people to market Well, I thought there would be questions, but I guess it's hard with this many people I'd love getting questions And I was just gonna say good luck to all of you that might be doing a startup.

I'm doing another 1 too and each 1 is different and challenging and you know A lot of people kind of pay attention.

And I'm like, I'm just another slob trying to do a startup.

See all Y Combinator transcripts on Youtube

Diane Greene at Startup School 2013