Startup Strategies: How Lew Cirne Made New Relic a SaaS Success

New Relic Founder and CEO Lew Cirne has done and seen a lot in his IT lifetime, and every bit of it influences how he approaches New Relic, both as a technology and a company. We profiled the popular cloud-based web-application performance management (APM) startup in October, and it has only grown since then — up to about 7,000 customers from about 5,600 — and ultimately doubling tripling its revenue in 2010. Cirne says the company, which launched in 2008, should be cashflow positive by the end of this year. Today, New Relic added support for Amazon’s Elastic Beanstalk PaaS offering, which is now the ninth public cloud (including Amazon EC2) with which New Relic has partnered. Here’s how Cirne has been able to do so much with New Relic in so little time.

From Apple to Wily

Cirne began working at Apple (s appl) in 1992 as a software engineer. Although the company then was nowhere near what it is now, Cirne was nonetheless impressed with Apple’s product-first approach to selling technology. Unfortunately, he explained, in the ’90s, the IT pendulum swung toward companies with the strongest sales forces, not necessarily those with the strongest products. Indeed, even when Cirne launched his own company, Wily, in 1998, he relied heavily on a big sales team despite what he believes was a very strong product. Of the hundreds of employees at Wily, Cirne estimates that about 15 actually wrote code.

A lot changed in the early 2000s with the rise of Apple and the emergence of Google (s goog). Cirne noticed that “customers were starting to distinguish software excellence and reward it,” and that even business users — a lot accustomed to highly complex, feature-packed products — were willing to try new things if they looked good. Form wasn’t necessarily triumphing over function, but users were realizing that simplicity made software very easy to use, and that maybe they didn’t require every feature under the sun. This realization, Cirne says, “lit a passion in me for the time being right for a new type of enterprise software company.”

In 2006, Cirne finally had his chance to embark on this journey, after CA Technologies (then Computer Associates, Inc.) bought Wily and made it a key component of the CA application performance management portfolio. Cirne lasted about a year as CTO of CA’s (s ca) Wily division before leaving to do his own thing. Wily hasn’t faded away under CA’s watch; the last Cirne heard, the Wily business has grown several times larger since 2006.

To New Relic

Cirne was “noodling on” New Relic (an anagram of his name) around the time he joined Benchmark Capital as an entrepreneur-in-residence in Jan. 2008. He was trying to figure out what he could have done differently to have kept Wily independent and grow it into an entity strong enough to stand on its own over the long haul. The plan was to work at Benchmark for about six months before securing funding for New Relic, but friend and Benchmark General Partner Peter Fenton convinced him to take funding and launch New Relic just a tad sooner. As Cirne recalls, his tenure as an EIR lasted about three days.

Among the things Cirne realized might have been able save Wily from acquisition was lower overhead costs. According to Cirne, Wily was just too expensive, with sales people costing upward of $200,000 apiece and taking a year to become fully productive. This meant raising more capital to pay them in the meantime without stifling growth, which led to significant VC dilution and heavy reliance on stress-rich revenue patterns (see the aforementioned New Relic profile for a comparison in VC funding between New Relic and Wily). In Cirne’s experience, upfront product payments enriched by maintenance fees causes much uncertainty, where a deal not closing by the quarter’s end could seriously affect cashflow. This is why, Cirne says, “I didn’t decide that New Relic should be a SaaS company because SaaS was trendy,” but because “I’ve felt the pain of the other approach.”

With New Relic, Cirne and his team — which, as of October, included only three sales people — are able to focus on the product without worrying about getting more money to keep operational or constantly growing a sales team that has to knock on doors all over the country. With a freemium SaaS model, Cirne says, New Relic sells itself, and the ease of use means there’s no real need for users to engage with company in order to get started. He compares New Relic to cell phones in the early ’90s: They offered less coverage than satellite phones, but also were less expensive and more broadly applicable. Like most true SaaS products, New Relic focuses on simplicity and great core features while ignoring, at least initially, all the bells and whistles that made legacy applications so difficult to master.

The new business model also means Cirne gets to stay in the CEO seat for as long as he pleases. In 2005, the Harvard Business Review wrote a piece about the search for a successor to Cirne as Wily CEO, a move he says was necessary given that he was a first-time executive in a company focused on enterprise sales. New Relic, however, is a product-focused company, which makes his technical skills an asset (he still writes New Relic code, in fact), and Cirne has no intent of stepping down. Part of his confidence comes from the success of guys like Mark Zuckerberg and Larry Page, “product-centric CEOs taking their companies to new levels of innovation.”

A Billion-Dollar Company?

If Cirne ever does step down, he thinks the right time might be as New Relic approaches the billion-dollar mark. He wouldn’t disclose New Relic’s earnings, but acknowledged that although a billion-dollar run rate is a ways off, he truly does think it’s a possibility. Cirne believes that 80 percent of web applications will utilize SaaS for APM, and with support for Java (s orcl), Ruby, PHP and .NET, New Relic is poised to snag a lot of them. It’s also, really, the only SaaS-borne APM product on the market right now. These two trends — a move toward being application-centric and a move away from managing infrastructure — represent a golden opportunity for New Relic, Cirne said, and he thinks the product is good enough, and the company economically efficient and flexible enough, to grasp it.

Already, he noted, the company has been confident enough otherwise very-appealing acquisition offers. If Cirne really has learned the right lessons while working his way through IT trends over the past 20 years, those could prove to be very wise decisions.

Images courtesy of New Relic. Front page image courtesy of Wikipedia Commons contributor Xbxg32000.

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