Chetan Puttagunta – Go Slow to Go Fast: Software Building and Investing - [Invest Like the Best, EP.156]

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At a Glance

Guest: Chetan Puttagunta, Partner at Benchmark Capital, an early investor in successful public companies such as MuleSoft, MongoDB, and Elastic.

Theme: An in-depth exploration of the full-cycle methodology for enterprise software, from product building and go-to-market strategy to scaling, with the core philosophy being "slow is smooth, smooth is fast."

Core Judgment: Chetan Puttagunta argues that the biggest trap for software companies is prematurely falling into "spreadsheet-driven growth" based on LTV/CAC formulas, which leads to neglecting product maturity and genuine customer needs, ultimately making the business unsustainable.

Slow is Smooth, Smooth is Fast: A Methodology for Building and Investing in Enterprise Software

1. Product Building: Driven by Empathy, Not Feature Stacking

Chetan Puttagunta believes the core of a software product is to help users accomplish their job to be done, not to make them experts in your product. This principle of "empathy" should guide all product decisions.

• Mechanism Breakdown: Users have established daily workflows. A new tool must integrate seamlessly or it will be abandoned. Therefore, product design should focus on "solving one problem" rather than providing a complex system requiring significant user learning time.
• Historical Context: Using MongoDB as an example, he notes its success hinged on addressing developers' pain point of "wanting to iterate quickly and experiment at low cost." In 2012, mainstream database experts criticized MongoDB for lacking features, but they overlooked the urgent need among non-expert developers for "schema-less design." MongoDB's first code commit was in 2007, but it didn't truly mature until 2015-2016, validating the long-termist philosophy of "slow is smooth, smooth is fast."
• Tactical Implementation: Chetan proposes two specific methods:

1. Lighthouse Customer Strategy: Initially focus on 5-10 core users, building "generalizable" features for them, not customized services. Distinguishing between "platform features" and "professional services" is critical.

2. Embrace Professional Services: Do not reject service revenue early on. Service contracts serve as a "business touchpoint" for building customer trust. By helping customers migrate to your system through services, you can eventually convert them to subscription revenue. He cites Workday and Veeva, which generated nearly 50% of their early revenue from services.

2. Market and Competition: The Market is Larger Than You Think, Competitors Fewer

Chetan Puttagunta believes the size of software markets is often severely underestimated, and the real competition for early-stage founders is not other startups, but customers' existing, inefficient "custom solutions."

• Data Chain: He references Salesforce, whose market potential at its IPO was estimated far below the $13 billion in revenue it later achieved. Salesforce still believes its core market penetration is under 20%.
• Competitive Landscape: Early on, Salesforce's average contract value was $12,000/year, while its main competitor, Siebel, had contract values of $400,000/year. They almost never competed in the same sales scenario. Therefore, founders should focus on serving customers who "don't look at competitors"—those using inefficient custom solutions.
• Inference and Signals: Chetan emphasizes that early-stage startups should avoid direct competition with giants prematurely. Only after the product is mature and has thousands of successful customers should they enter the large enterprise market, equipped to tell a compelling story of "why you are better than the giant."

3. Scaling: Beware the Unit Economics Trap, Return to Product-Led Growth

Chetan Puttagunta warns that scaling prematurely based on LTV/CAC formulas is extremely dangerous, turning a company from "technology-driven" to "spreadsheet-driven." True scaling should be built on product maturity and deep customer engagement.

• Mechanism Breakdown: He proposes an ideal model: LTV should tend towards infinity, and CAC should tend towards zero. The only way to achieve this is to build an "absolutely outstanding product" where the customer experience is so good it drives organic growth.
• Data Chain: Using MuleSoft as an example, he demonstrates the power of capital efficiency. MuleSoft grew from $100 million to nearly $200 million in revenue, consuming only about $8 million; from $200 million to $300 million, it consumed only $4 million. This efficiency stemmed from its product-led sales system.
• Inference and Signals: Chetan believes a healthy growth model is one where customer contract value compounds at 15% annually. This requires the company to solve the customer's "fundamental business problem" and become a long-term business partner, not just provide a "point solution." The signal to verify this is: whether customers are willing to consistently pay higher fees, and whether the company can sustain this compound growth rate for 10 years.

4. Hiring and Organization: Talent is the Only Scalable Asset, Culture is Passed Through Stories

Chetan Puttagunta believes that software companies are ultimately "people businesses," making hiring and talent retention the most critical aspects of scaling.

• Mechanism Breakdown: Hiring is a "two-way selection" process that requires a systematic approach, much like sales. A failed hire is a failure of the company's process.
• Strategy Sharing: He shares MuleSoft's hiring strategies:

1. Embrace Remote Work: Build a remote-friendly culture from day one, e.g., requiring all meetings to have full online participation, even if some people are in the same room.

2. Written Communication: Encourage deep writing in the company Wiki, transparently documenting decision-making processes for asynchronous learning and participation.

3. Creative Marketing: Ran ads in San Francisco train stations saying "Become an Integration Superhero," leveraging efficient offline ad inventory for recruiting.

• Cultural Transmission: In high-growth companies (100% annual employee increase), cultural transmission is vital. Chetan believes company culture is a set of "shared stories" that requires systematic dissemination of the company's mission and values from the very beginning.

Position Moves

Position	Guest's Stance	Key Data
MongoDB	Bullish (Early investment case)	First code commit in 2007, invested in 2012, market cap ~$8B in 2019.
MuleSoft	Bullish (Investment case)	Grew from $100M to $200M revenue consuming ~$8M; from $200M to $300M consuming ~$4M. Later acquired by Salesforce for $6.5B.
Elastic	Bullish (Board member)	Management team successfully scaled from single-digit million revenue to hundreds of millions.
Salesforce	Neutral (Cited as industry benchmark)	Average contract value of $12,000/year in 2004; revenue grew from $100M to $13B; customer ACV compound growth rate of 15%.
Workday	Neutral (Cited as methodology case)	Nearly 50% of early revenue came from services.
Veeva	Neutral (Cited as methodology case)	Nearly 50% of early revenue came from services.
Amazon (AWS)	Neutral (Analyzed as industry phenomenon)	Began public services around 2006.
Microsoft (Azure)	Neutral (Analyzed as industry phenomenon)	Latest quarterly revenue grew 59% YoY, market share ~17%.
Google (Cloud)	Neutral (Analyzed as industry phenomenon)	Popular for machine learning and analytical workloads.
Duffel	Bullish (Investment case)	Transforming the global airline distribution system (GDS) with APIs and microservices.

Judgments Worth Remembering

1. "Slow is smooth, smooth is fast" is the ultimate philosophy of software building. Chetan Puttagunta believes that taking time to polish product maturity and build customer trust ultimately leads to faster growth and higher capital efficiency than "premature scaling."

2. The size of the software market is much larger than you think. Using Salesforce as an example, he points out that its potential market was severely underestimated, with final revenue far exceeding early predictions. This means founders should not worry too early about competition but focus on solving real customer problems.

3. The biggest competitor in the early stage is not other startups, but the customer's existing inefficient solution. Chetan believes early customers are not comparing you to another startup; they are evaluating whether you can do better than their current custom solution.

4. Beware the "dangerous temptation" of the LTV/CAC formula. He argues that using formulas to drive growth turns a company from "technology-driven" to "spreadsheet-driven," ignoring the essence of the product, ultimately leading to high burn and a difficult-to-reverse predicament.

5. The ideal model is LTV tending towards infinity and CAC tending towards zero. The only path to achieve this is to build an "absolutely outstanding product" that drives organic growth through an exceptional customer experience.

6. Professional services are not bad revenue; they are a "business touchpoint" for building trust. Chetan encourages early-stage companies to accept service contracts, using services to help customers migrate and eventually convert them to subscription revenue. Workday and Veeva are successful examples of this strategy.

7. Company culture is a set of "shared stories" that needs systematic dissemination from the very beginning. In high-growth companies, over half of the employees have been there for less than a year. Transmitting the founding team's values is a core challenge during the scaling process.

8. "Default open" is a competitive advantage in the new era. Chetan believes that due to the extremely fast pace of innovation, keeping technical details secret is no longer a core barrier. The true moat is "customer relationships" and "becoming a trusted supplier." Publicly sharing technical papers and solutions, like Google does, can instead attract talent and stimulate innovation.