startups

After 20 years, Salesforce keeps rising through the cloud – San Francisco Chronicle


Salesforce.com didn’t start in the clouds, but back in 1999, it had a pretty good view.

Marc Benioff, then a 35-year-old Oracle executive, was on a long leash from his boss, Larry Ellison. He was already investing in startups and toying with web software ideas. From a chance introduction, he talked a three-man software development team — Parker Harris, Dave Moellenhoff and Frank Dominguez Jr. — into holing up in an apartment he rented next door to his Telegraph Hill home and working on a program that would store customer contacts for salespeople on the web.

They started coding on March 8, 1999.

Twenty years later, Salesforce.com is worth $120 billion, with annual revenue of $13.3 billion and 36,000 employees. Its Dreamforce conference is the biggest tech show in town. And, well, there’s the small matter of Salesforce Tower, the tallest structure west of the Mississippi and north of the Tehachapis, and as of November, company headquarters, about 15 blocks south of where it all started.

You can tell Salesforce was founded by a tech marketer and three programmers. Despite Benioff’s occasional urgings to underlings to simplify a presentation or hammer home a message in fewer words, his company is a champion producer of impenetrable yet feel-good jargon. (Are you a Trailblazer on the Customer 360 Success Platform Journey? Well, congratulations.)


It didn’t seem that complicated up on Telegraph Hill, though the technical challenges were daunting. The idea behind Salesforce is one that has become so obvious in hindsight, so successful that it has all but obliterated its origin: software delivered over the internet.

Is there any other kind, you ask, as your kid downloads the latest “Fortnite” update? Well, yes, if you can remember the days before smartphones and Wi-Fi and even DSL and cable modems. People used to install software on servers and desktop computers — remember desktop computers? — from compact discs, or before that, floppy ones.

Benioff’s insight, shared by other entrepreneurs, was that the internet would allow the delivery of software, constantly upgraded and improved upon, with nothing to install or update. The heavy computational lifting would be done on a remote server, which also meant customers wouldn’t have to buy expensive hardware to run the software.

The old way of doing things was good for old-line Silicon Valley, in that companies could sell expensive software licenses and expensive servers. Was it great for customers? Well, they didn’t have much choice.

Salesforce.com proposed doing away with all of that: No contracts, a flat fee of $50 a month per user and nothing else to buy or install besides a web browser. Licenses from Siebel, the big seller of sales software in that era, could easily run in the millions of dollars.



Professional investors scoffed at Benioff, despite his Oracle resume. No corporate technology executive would let a startup store business data on its machines, they told him.

Benioff soldiered on, taking meetings in the apartment, his home next door or at Mama’s, the breakfast spot down the hill from Salesforce’s precarious perch. Harris, Moellenhoff and Dominguez said they took their inspiration from the successful consumer web startups of the day: eBay, Amazon.com, even Yahoo. (Sure enough, an early Salesforce prototype shows what looks like Amazon tabs and Yahoo buttons.)

“One of the things we thought was important is you shouldn’t need a manual,” said Dominguez.

Before long, the coders felt like they had something that would load fast enough and work easily enough, and Benioff drummed up money — first from Magdalena Yesil, a founder of CyberCash who knew him from his Oracle days, and then from Ellison and Cnet found Halsey Minor. Despite Harris’ trepidations about taking so much space, Salesforce rented its first real office at Rincon Center, and soon filled it with employees.


With the dot-com money flowing, San Francisco was alive with new ideas and seemingly nonstop parties back then, including some infamous holiday gatherings at Benioff’s house. For Salesforce’s launch party, Benioff hired the B-52s; the event cost $600,000, high even for those go-go days. The company hired John Dillon, an experienced technology executive, as CEO.

For all his charm, Benioff didn’t have much luck with venture capitalists. “Kleiner threw us out,” he said. “Sequoia threw us out. U.S. Venture Partners threw us out” — the latter a particular insult, since Yesil worked there as a venture partner. Sequoia and U.S. Venture Partners instead invested in Sales.com, a Siebel spinoff. Another competitor was Oracle, which announced plans for web apps soon after Salesforce.com launched, which prompted Benioff to kick Ellison off the board.

In early 2000, Benioff hired actors to stage a mock protest outside a Siebel user conference, which drew TV crews and eventually the police, who got in position to protect the “protesters.” He seemed to delight in tweaking Siebel, run by Thomas Siebel, who was once his boss at Oracle.

Then the Nasdaq crashed, and Salesforce started encountering the unthinkable: What if its customers went out of business?


In April 2001, Salesforce raised $46.9 million from some private equity firms and wealthy individuals, but Sand Hill Road’s venture capitalists were still giving the company the cold shoulder. But even that money started running dry as the company expanded its downtown offices and hired more salespeople.

Nancy Connery, who had joined the company from Oracle when it was still in the Telegraph Hill apartment, was running human resources. Not long before, she’d been debating whether the company should lease a BMW to lure hot-shot sales recruits. Now it was time to cut back.

By October, Dillon was out as CEO; the chief financial officer also left. In his book “Behind the Cloud,” Benioff recalled that the company was burning through $1 million to $1.5 million a month. Connery oversaw cuts of a tenth of the company’s 300-person workforce.

“It was a shock to the senses,” Dominguez said. The layoffs meant “this is the real world, it’s been really a lot of fun, but it’s hard work. A lot of companies don’t succeed. We don’t want to be one of those companies.”

Harris remembered it as a hard time. He had young children. The management departures were unnerving.

“My perspective was that John led from the right place,” Connery said. “He and Marc were just fundamentally very different in how they wanted to grow and scale the company.” Dillon did not respond to a request for comment.


“This generation of entrepreneurs doesn’t realize times like this,” said Mark Goldstein, a technology entrepreneur who was an adviser to Salesforce.com in its early days. “You go through a chasm. Just because you launch something doesn’t mean it works. There was a lot more product perfection.”


One thing that kept the company together, Harris said, was its early commitment to philanthropy. “That seed cemented in our culture this idea that the company was more than just us,” he said. “We had to build the company. We had to make sure it survived; otherwise it would have no impact.”

Benioff had created a foundation to live alongside Salesforce in its earliest months, seeded with $2.5 million of his own money and shares of Salesforce. In 2001, the same year the company cut staff, it opened up 10 computer centers in schools and other sites in San Francisco. Benioff even insisted that a volunteering event continue on a day when layoffs struck.

“Now is when we need to hit the accelerator” in community service, Suzanne DiBianca, the longtime head of Salesforce’s philanthropic efforts, recalls Benioff telling her. Even as the corporate coffers seemed to be drying up, Salesforce was buying turkeys for Glide’s Thanksgiving dinners, she remembers.

Meanwhile, the business model still required fixing. One reason Salesforce was burning through cash — a problem that dogs subscription software companies to this day — was that customers signed up only with one-month agreements, while salespeople got paid commissions, often worth two or three months’ of a customer’s subscription, up front.

Yesil recalls working on spreadsheets late at night and coming up with the solution: annual contracts.

Benioff initially resisted, according to Yesil, because part of Salesforce’s no-software marketing spiel involved getting rid of contracts and discounts for a flat fee. “They’ll hate us. I don’t want to do it,” she remembered Benioff telling her.

Benioff came around to the idea. Bigger customers, lured by discounts, would pay up front, while smaller customers could pay the higher monthly fee. It’s a model that’s widely copied in the software industry today.

From there, the company’s cash flow turned around. Then real profits came. In late 2003, it filed for an initial public offering, and after a delay, went public in June 2004, raising $110 million.

In 2005, Siebel — which had bought back Sales.com from the same investors that rebuffed Salesforce — sold itself to Oracle for $5.85 billion. By 2007, Salesforce would be worth more than that.

Benioff’s party-throwing impulses by then had coalesced into a single event: Dreamforce, an annual San Francisco software conference that got its start in 2003. The 2008 version attracted 10,000 attendees. Eventually, the company capped tickets at 171,000. Following in the B-52’s footsteps have been bands like Green Day and U2.

The business has continued to grow, and grow, and grow. A plan for a campus in Mission Bay had to be abandoned because it couldn’t house the company by the time buildings would go up. That’s when Salesforce switched plans, eventually setting its sights on the city’s tallest building. In 2014, the Transbay Tower became Salesforce Tower, and the company moved there four years later.

Salesforce’s charity has grown too, giving more than $50 million to schools in San Francisco and Oakland. Benioff estimates he and his wife Lynne have given away about $500 million — half of that to the UCSF Benioff Children’s Hospitals.


Even on a cool, misty day in March, when Benioff and Harris walked over to the old apartment on Telegraph Hill to share some memories, the new tower loomed overhead, cutting through the fog.

One of the people working in that building is Moellenhoff, who recently rejoined the company after a five-year break. His title is founding architect, and he’s been charged with rethinking all the assumptions he and Harris and Dominguez made 20 years ago, when they built the first version of Salesforce.com.

Moellenhoff recalls a day when Benioff stuffed him in the back of his Porsche 911, and gunned it down Interstate 280 for a meeting with “Steve.” Steve turned out to be Steve Jobs, the Apple co-founder.

“Steve walks in and we had a conversation about what we were doing. His overriding message was ‘Make your customers your sales force. Make them so happy with your product that they will sell it to everyone that they know.’” That’s been part of the Salesforce ethic since then.”


Though people walking past Salesforce Tower may still puzzle over what, exactly, the company does, its customers aren’t confused. Its software helps them run their businesses better.

Monte Zweben, a technology entrepreneur who is now CEO of AI development shop Splice Machine, recalls Benioff persuading him to become Salesforce’s first customer in 1999. Zweben was running a global software company on Excel spreadsheets, and Siebel was too expensive, designed for much bigger companies. At every company he’s started since then, he’s used Salesforce, he said.

“I always wondered about the stickiness of Salesforce,” Zweben said. “If suddenly somebody else had a fantastic sales application, how hard would it be for an organization to make that transition?

“It’s been really remarkable … that even though the applications are not intrinsically sticky, they’ve dominated.”

Benioff has few regrets. He promoted Salesforce executive Keith Block to co-CEO last year, overseeing sales and operations so he could focus on product development and philanthropy. If he has any frustrations, he said over an omelet with a side of black beans at Mama’s, it’s that many companies have copied Salesforce’s business model, but few have copied Salesforce’s built-in commitment to charity.

Some startup founders argue that they have to build the product and the company first — giving back can come later.

“They’re too vested in their own fear, rather than vesting in their vision for the future,” Benioff said.

Some have doubts about Salesforce’s vision for the future. At $120 billion, it’s worth two-thirds what Oracle, still run by Benioff’s mentor Ellison, is. Analysts worry that investors who have boosted its shares in recent years are getting “software fatigue.” They also fret that Salesforce is too dependent on big acquisitions, like 2013’s ExactTarget buy and 2018’s MuleSoft deal, for growth.

Those are problems of a big company, in a big building, in a big city — not the small startup it was two decades ago.

Harris, looking at the apartment where Salesforce started, said it seemed smaller than he remembered.

“We don’t really look back,” Harris said. “I think what was fun back then was everything was new: The software was new, the people were new. Not that I would trade it for where we are now.”


And what did Benioff miss from those days?

“Mama’s.”

Owen Thomas is The San Francisco Chronicle’s business editor. Email: othomas@sfchronicle.com Twitter: @owenthomas





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.