GitHub - Why Microsoft Paid $7.5B for the Future of Software! - A Case Study for Entrepreneurs

this week on case studies with the biz dockets github 7.5 billion dollar check was just written from Microsoft to buy the company are they gonna rot on the vine or as Microsoft gonna take them even higher we're gonna find out this week leave comments tell me what you think github it all started the history when two guys founded the company there's actually a third founder and he's kind of quiet but it was Tom Preston Warner and chris wanstrath they come together to form github well what does it get and what is a hub of them well what github is it's a consolidation point and it's a tracking point for software development a git is actually a version control mechanism or a team coordination mechanism that was developed by Linus Torvalds by the way that's the same Linus that brought us Linux so you know he's a really really smart guy so you have this tracking mechanism needs you need to control versions you need to get software developers tools so they can work together well github says what if we made something in the cloud where they could store their code keep track of versions keep track of each other talk to each other sign off when they finished maybe an open source element for it in other words hey I just adapted your code for this and I'm signing off as its complete so they had all of this coming together in other words it's a sandbox where developers around the world can come together and work and make magic that you and I love and company is like Oh Facebook IBM a whole mess of others use it to bring the magic to software and apps and products that we depend on every day so let's go up the history curve and see how they grew starting with the bright idea and moving up in 2009 they had about 46,000 developer accounts that were in place which was pretty amazing because they just got started no wait and they basically bootstrapped it with their own money a year later they had gotten up to about a hundred thousand but halfway through 2010 a year after that they were already at a million something was going on and the world was watching and paying attention specifically a year later when they hit 2 million total user accounts and they passed SourceForge and Google to other repositories that allow developers to work together store code and do things like that and when it's time to grow what do you need you need capital you need venture cash and who they get with none other than in dreesen Horowitz that's right Marc Andreessen the developer and inventor of the original netscape browser who know a thing or two about what developers would appreciate and need and what they did is they put in a hundred million dollars for about thirteen percent of the young github company and I say young because it's only a few years old but it's passing some industry giants an interesting tidbit there is at that time that was the largest check ever written to date by andreessen horowitz a hundred million dollars from there the growth continued let's check it out 2013 suddenly they've blown right past three million and they're at five million unique user accounts it's really off like a rocket and it's taken on a global presence there are developers around the world that are storing code in there and sometimes they're storing versions to a lot of things that weren't appealing to certain governments as we go into 2014 things are speeding past five million toward ten million accounts and something interesting happen first India decides to block them because they had some documentation on there that was related to Isis and the Indian government did not like that and did not want it to be circulated to developers or other people who might be using github for their own purposes also in Russia they were very upset because there was like a suicide manual that had been put online and Russia wanted to block access to it in 2015 halfway through the year China gets upset and China wants to block a github for a very simple reason they were presenting how to avoid internet censorship now if you know anything about the Chinese government you know there was a major WTF going on in Beijing when they heard that that sort of information is out there they're trying to shut down cable channels and objectionable programming and web sites and you know I got to say China and the age of the internet you're gonna be playing whack-a-mole till the return of Christ because get used to it one goes down and others coming up nonetheless it shows you the power and influence that github was having as an enabler of teams of people to come together and collaborate and keep track of versions and all of the features that were part of github in July of 15 the success led to a need for more capital and they went out and they raised 250 million dollars that's right a quarter of a billion dollars and they raised it from none other than Sequoia now there's an interesting thing here that I'd like to point out if you take a look what I got here 13% was what andreessen horowitz had had andreessen horowitz not had what's called a top-up right in other words the right to invest more at a later date to keep my 13% at 13% they would have actually gone down to eleven point four percent but they kept their top upright which meant that these numbers came together Sequoia with 12 and a half and andreessen horowitz with 13 now why is that important because by this time it is a rare thing that an entrepreneur would still have 75% of the company for the founders and the engineers and the people that have been given stock options in that company normally by this time it's completely flipped there's about 25 percent left for management and there's 75 percent in the hands of the investors that go through the sequential Series A Series B Series C which is using letters and merely to number the investment tranches that happen over time the company so github is doing pretty good out in the marketplace and they also did pretty good because they bootstrap the company basically and when they got to these points when they took capital they were highly valuable so they only gave up relatively small percent compared to what other companies would be giving up that is an important lesson you can raise capital to late and miss opportunities to invest in things and you can also raise capital to early and give away more of your company early on when maybe you should have reached down deep and bootstrapped or you know used any of the many crowdsourcing options that might be available to you don't be too anxious to raise that capital but don't pass up opportunities to raise capital to grow there is the tension that every entrepreneur will face so after you've raised that money how are they doing well a report came out in nine months of 2016 it got disclosed that they had actually had approximately ninety nine million dollars in revenue for the first nine months of 16 but they had lost sixty eight million dollars showing that building a global github to serve these all these millions and millions of accounts was not cheap however this is showing the kind of scale when you've got the dollars to actually weather those losses as you scale it puts you in a good place because let's take a look what was happening to the number of user accounts number of user accounts was heading to the moon had passed 10 million in 1415 and by the time they reach early 17 after this loss which was the first nine months of 16 they were at 20 million plus user accounts well now that they raised this money so to propel them on future growth curve and certainly they were using it as they went past 10 million subscribers and we're heading toward the moon after nine months of 2016 it was indicated that they had actually had revenue of 99 million dollars however they had a loss of 68 million dollars which means the cost in the middle a hundred and sixty seven million dollars of cost against ninety nine million dollars of revenue resulting in this loss so this is what's interesting about growing and scaling companies sometimes losses are okay twitter did it for a long time uber has been doing it since boobers been around and we all know what happened to Amazon that finally over time they posted profits so if you can control the spend and whether the loss as you're growing toward the moon this this is something that you can actually sustain so what I want to step to now we talked about the history very briefly I want to talk about a flub that happened to the founder back a couple years ago and this is before all of the me2 movement and things that were going on Tom Preston Werner his wife is working with him at the company and there is a female developer that says they're treating me badly they're treating me harshly you know I'm being harassed he's very dictatorial he gives feedback in a very demeaning way so wasn't sexual harassment but it was like a hostile workplace a terrible environment and she became fed up and she filed a complaint well the first thing they did like everybody else did is nothing to see here this is a disgruntled employee obviously these are outrageous claims well guess what they spent a couple weeks researching it and the board came to a conclusion that said you know what the wife wasn't supposed to be working here we had an agreement with Tom number one number two these charges have some merit so yes what I think even though he's a co-founder of the company and he owns a big stack of stock out and Tom Preston Warner resigned if you call resigning walking toward the door with the board pushing you on the shoulders resigning but nonetheless he resigned so now you've got bye-bye there's a lesson here you can lose it all just because you're the founder doesn't mean that you can be a putz when it comes to giving people feedback or just ignore the fact that people's feelings and professionalism are important and frequently you find people say hey if you want to be here and you want your stock options and you want part of this I am Who I am leave me alone guess what that doesn't fly anymore and it doesn't fly when you've got harsh emotional harassment and it certainly doesn't fly as we've seen thank you matt lauer Thank You Harvey Weinstein with the me2 movement uncovering things that have been going on far too long I digress let's get back to github in this situation well guess what you have two years after this happened in 2017 you still had a little bit of collateral damage here as there were claims that he had set a culture in place and not everything was rosy there was a few more dynamics that came here that supposedly it was handled but it's an example of even with uber just because Travis has left the company there was still people that were in there that were made in Travis's image hired by Travis and upset that he was gone that hadn't really changed the way they were treating other people and that they were acting and so they've had to be dealt with as well so in other words you can ask a co-founder to leave but it doesn't necessarily change a culture overnight lesson two entrepreneurs set your culture early it can be a culture of high accountability and performance and man's to hit objectives you just got to treat the people in the correct way and manage yourself accordingly because it can and will bite you even if you've got 350 million dollars of investment from andreessen horowitz and Sequoia so you've got a company that's been growing like crazy you've got a board that's done the right thing to help the work environment be healed and you've got with all the success what do you attract attention and attention from who from Microsoft and the 28 million developers and the 1.8 million businesses that were working with github at the beginning of 18 Microsoft was the most active among them in other words Microsoft that finds says hey this github thing works and they had several of their own products and product groups using github for collaboration and using it to help developers collaborate which is kind of interesting because there's a lot of people that say wait a minute wait a minute Microsoft's been trying to kill open-source why would they be using or in favor of something that helps collaboration well the times they are a-changin and Microsoft is changing maybe not as fast as some people want but they are changing how do we know well they wrote a 7.5 billion dollar check this is 3.75 times more value just three years later and there's only one word for that net is dam that is a huge growth curve now their percent comes home so andreessen horowitz gets 13 of that Sequoia twelve and a half percent of that give or take that's their returns now there's something else that happened this year which was unprecedented and it happened to github a distributed denial-of-service let me explain what that is a distributed of denial services where some bad actor either uses or commandeer thousands and thousands and thousands of pcs some of which are infected with viruses that cause them to go into zombie mode so they can be controlled by these bad actors and they attempt to hit individual websites with so much traffic and force that services denied in other words the website is so busy trying to react to all of this incoming traffic that when you and I try to go there we can't get there have you ever gone to your favorite web site or some location that you like and it turns around around and around and around but you can't get there and you refresh the web browser and you close the browser and start again it's still here and you can't get to it one of two things is happening they're having a distributed denial of service attack or their servers down either way they can't serve you the webpage that you can visit that site what happened here it was the largest distributed denial of service traffic hit in history it was one point three five terabytes now let me tell you what a terabyte is if you take a terabyte you divide it by eight you get point one six eight seven five terabytes now let's turn a terabyte into a megabyte because you and I understand megabytes like when our camera phone takes a picture most of us are taking a picture and that's like a little two megabyte file so if we text it to somebody or email it to somebody the data we use for that it's going to be about two megabytes because that's the size of that picture well 0.168 seven five terabytes is roughly a hundred and sixty seven thousand eight hundred and fifty megabytes that's a lot of megabytes well if we think of the picture at two megabytes that is eighty four thousand three hundred and seventy-five pictures per second that we're being thrown at the website well that's just a second how much is that a minute that would be like 5.1 million pictures a minute being hit to that website so if the website is trying to catch all that at once that was the size of the data coming at it now I have another way to look at it I turn it into a glass of water let's say you take a can of your favorite soda and you take a little gulp of it that's probably about two ounces give or take a nice big swig is about two ounces what if we take those two ounces and apply the same math that would mean you would have a hundred and sixty seven thousand eight hundred and fifty ounces per second trying to go down your throat well there's a hundred and twenty eight ounces in a gallon so that would be one thousand three hundred and eighteen gallons per second that you're trying to drink so picture yourself taking a little swig of soda and someone that tries to drown you hit you with one thousand three hundred and eighteen gallons so now when you convert that you imagine it in something we can understand this that much water that's what happens in a distributed denial-of-service some bad actor gets all those computers together boom and they hit github and it brought it to its freakin knees now these are smart technologists so they quickly figure out how to stop the DDoS and how to reroute traffic and to do things to get out of it so that people that are using github can get back to it nonetheless I thought that would be an interesting lesson converting that kind of traffic to something we understand the swig of soda now let's take a look at a couple of reasons that Microsoft has actually published as for the additional rationale first of all they said we need to be developer focused and if this is the leading tool in the known universe for doing something like this then we need to be in and why wouldn't we own it additionally they took NAT Friedman who's the corporate VP of developer relations he's going to be plugged in as the division president or CEO of github when the deal closes you also take a look at cloud and you look at the amount of effort that Microsoft already was putting in being an active user and suddenly this starts to make sense so time will tell where the Microsoft pulls it off or it's the old Microsoft the going back to their old ways and github dies a terrible death kind of the way Time Warner killed AOL and other big companies have bought promising things in life and we've just watched them rot on the vine I hope they make it because I'm in favor of developer tools that enable the magic of software to make more stuff for me tomorrow than I have today because I dig using it in my life love to hear what you think about it leave some comments below I attempt to get to as many as I can you can also follow me over on Instagram and remember value teaming is on a mission to get to a million subscribers and when we do the first annual value team at conference for entrepreneurs with Patrick BETT David yours truly the biz doc and other leaders showing you how to drive your business drive yourself and to lead people around you better than you found them until next time I'm Thomas with the biz doc and I hope I left you better than I found you you

Channel: Valuetainment

Views: 468,093

Rating: 4.7258778 out of 5

Keywords: Entrepreneur, Entrepreneurs, Entrepreneurship, Entrepreneur Motivation, Entrepreneur Advice, Startup Entrepreneurs, valuetainment, patrick bet david, github, microsoft, tom ellsworth, biz doc, case study, case studies, tom preston werner, chris wanstrath

Id: UEb1cvZG3GU

Length: 17min 40sec (1060 seconds)

Published: Fri Jun 08 2018