ELECTRONIC COMMERCE

It’s just as easy to start a company in a big market as a small market, particularly if there’s a paradigm shift. At Rasna, Krach learned how difficult it was to put in the work needed to win in a small market. But Ariba was the big one. This was commerce. This was disrupting one of the biggest, oldest industries in the world.

At Benchmark Capital, Krach talked with a lot of companies that needed CEOs. He became convinced that one looked like a good investment. The Benchmark team asked Krach to explain what the company did. After 10 minutes of explaining, everyone was still confused. The team explained that if you can’t position it in a few words, there’s probably not much of a market for it.

The positioning out of the gate for Ariba was the ‘purchasing agent for the purchasing agent.’

To become category king, you need to start by dominating a market small enough that you can own, but big enough to live off of. Ideally, it’s defensible, and it will be a strategic high ground you can use to win adjacent markets.

Ariba focused by first targeting buyers, applying the golden rule: “The guy with the gold rules.” Then, the company decided to focus on indirect goods instead of direct. Indirect goods are the things you need to run the business that don’t go directly into your product — paper clips, computers and so on. Companies buy billions of dollars in indirect goods, but they don’t have to be made to order so transactions can be automated more quickly. Finally, Ariba focused on the requisitioning process, because that was paper-intensive and time-consuming. A great problem to solve.

You make stuff. You sell stuff. You satisfy the customer. You can have the greatest strategy in the world, but if you can’t execute, you’re going to fail every time. You can have a mediocre strategy, but if you can out-execute your competition, you can win.

At Benchmark, Krach heard from a lot of dot-com CEOs whose business plan was to build a popular site, and then sell advertising. A few companies might succeed at this, but not many. For Ariba, Krach’s team created a real quantitative value proposition and charged a lot of money for it — the so-called “old-fashioned way of doing business.”

At Ariba, the rule was always to hire better than yourself. “A” people hire “A” and “A+” people. “B” people hire “C” people. The principle of always hiring the best was so deeply ingrained in the company that in the early days, a number of top executives actually went to Krach and offered to take less senior roles to that they could be replaced with higher caliber people who would be better able to grow the company.

Early on, Krach asked his head of engineering to build a prototype. He wisely said, ‘No, I’m not going to write a single line of code until we go out and talk to customers.’ Krach’s team identified a diagonal slice of Fortune 500 people to talk with, from CEOs to VPs, to purchasing agents, to individual contributors. They asked just two questions: ‘How are you doing it [procurement] now?’ They would typically say, ‘Oh, man, it’s a mess. It’s a paper-based process; it takes forever. You never know what you’re going to get. I hate the purchasing guy.’

Then they asked, ‘What would be ideal?’ ‘Oh, it’d be automated,’ they would say. ‘You could have a walk-up user interface; you could parametrically change the business rules. It’d be integrated with the financials. Maybe someday, it would use this thing called the internet and maybe hook up with the suppliers. You wouldn’t need any paper … So, what are you guys building anyway?’