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Marcus: It's one thing for things to be game over after year two, quite another thing. When it's game over at year nine, what could possibly have happened? That's worse yet. We overcame it and that's its own story.
Logan: Welcome to the Logan Bartlett show on this episode. What you're going to hear is a conversation I had with co founder and former CEO of Guidewire, Marcus Rue.
Now, Marcus is currently a partner at Battery Ventures, which is my former CEO We talk about Marcus's journey from a PhD in philosophy into an entrepreneur building one of the biggest vertical software businesses out there and then what it's been like transitioning into the world of investing at Battery Ventures.
We talk about his biggest traits that he looks for in the entrepreneurs that he wants to back as well as what the key characteristic he seeks out in any company and whether it makes sense to invest. You must speak to your own strengths and your own nature. Sometimes you feel as a founder of a company that you have to represent yourself as something else.
It always fails. People see through it. People hate inauthenticity. We also talk about the insecurity of entrepreneurship and how Guidewire almost failed in their ninth year in business and what it was like powering through and building the business into what it is today. One of the smartest individuals that I've had a chance to talk with and really fortunate to have this discussion with Marcus that you'll hear now.
Logan: Marcus, thanks for doing this.
Marcus: Uh, honored to be here.
Logan: So, uh, in the early 2000s, you decided you wanted to be an entrepreneur and went out and hunted for a problem to solve and ultimately landed on guidewire, which is a super successful. I don't know. You're still involved today, right? Still chairman, uh, in doing over a billion in revenue and very high valuation.
Approaching a billion of revenue. Um, do you tend to gravitate to founders now that you're actually on the investing side, that, uh, are uniquely passionate about some domain and coming with a bunch of experience or because your experience hunting for a problem as an entrepreneur, do you, do you side on one versus the other?
Uh,
Marcus: You could call me promiscuous in that sense. I fall in love with pretty much every founder I meet at some level. And, uh, you know, one thing you hear to be a good investor is you have to develop a discernment and only so many hours in the day, et cetera. But I, I find that, uh, [00:02:00] I find that in almost every entrepreneur I meet, even if there's some degree of insanity.
Uh, there that there's something extremely compelling, um, what matters more to me personally and as part of my underwriting process is less, uh, a specific corpus of experience than a kind of spiky insight. And sometimes that derives from having been in the domain, but not necessarily. If
Logan: that Spiky insight or, uh, uh, wondering like the, the questions that you ask yourself from an investment standpoint, is there, is there a handful of like heuristics or considerations that you come back to?
Is it why now and why them, or, or are there things that you sort of
Marcus: Sure. Speaking immodestly, if there's one thing I think I might be good at, uh, it's engaging in a certain kind of cross examination. Uh, about the strategy right off the bat, and I think I indulge in that a bit further than, um, that maybe some of my counterparts, uh, in the business, uh, who are, you know, attract to the metrics and so forth.
I, I think the thing that I'm always trying to discern is like, is this strategically coherent? I think that is the, that's the ultimate signal that matters most. That's, that's necessary, not sufficient. There are a million other questions you have to ask and understand. But most importantly, you have to know, is there a coherent, is there a coherent thought process?
Is there a through line that, uh, you know, where premises follow, where conclusions follow from, from sound premises? And to my astonishment, um, a huge number of founders, even those who have been incredibly credentialed, passionate, intelligent, etc. Are can be surprisingly weak on that count. Um, just elaborate a little bit.
You know, what's a strategy? I mean, just at the most base definition. What is a strategy? I mean, it starts with a diagnosis. It starts with a theory of the status quo and an account for why that status quo is as it is. Uh, sometimes there's been a coordination problem or a technology barrier or some kind of incentive problem.
Okay. There's some reason that things are not as they should be. And that has to be very cogently, succinctly, and convincingly explained. And that's not even talking about the company. That's just talking about the account of what is today the case. Then there's a market definition and an [00:04:00] explanation of what is the point of attach?
What is, what is the insertion here? What is the claim that's being made? And that happens at the level of a noun phrase, not an account of some extraordinary breakthrough technology or some extraordinary team. It's, it's a theory that can be explained usually in plain English, With nouns, not with adjectives.
Uh, and that simple initial step, that simple test, I found, I find, you know, at least half of the companies I talk to fail by my criteria, right in the beginning. Now that said, I've kind of fallen in love at some level with the passion, the insight, and maybe you can extract a little more coherence. Uh, but if it takes too much effort to do that extraction, then I start to worry.
Logan: then I start to worry. Sometimes, uh, a lack of, uh, or like a hubris of like, No, I can solve this problem uniquely is is a really attractive thing and not being, uh, not being having your your expectations quelled by, you know, Precedent experience versus other times.
It's good to know the history and the pitfalls that others have gone through in the pursuit so that you don't make the same mistakes. Do you, do you, do you prefer people that actually know the, the, the root of the history and the recent people that have failed? Or do you prefer that night of pursuing something with the first
Marcus: Actually, it's something slightly different. So I'd say like uninformed confidence is a fine line between uninformed confidence and just recklessness, right? You have to be confident. You have to be secure in yourself and takes a fair amount of ego to do that. That's that's also a necessary ingredient, but it's not sufficient.
And you actually have to have a coach in theory. Sometimes you can be lucky, but you know, we're not in the business of trying to bet on luck. We're trying to find a stronger signal. Uh, and I have found that sometimes people who come from the industry have had time just through [00:06:00] sheer experience to formulate.
A theory and an account that's that's that's really deeply felt and they have a they've been able to visualize, you know, the product that should have existed the thing that they wish they had when they were a professional sometimes, but sometimes they've also inherited all of the, you know, all of the presumptions, all of the conventional thinking, all of the inertial principles that have things be the way they are.
And so they're actually they have a kind of blind site. Similarly, people from the outside can approach with a kind of naivete, you know, and an assumption. There's a very classic slide that you will see in many funding pitches, and it's like the spaghetti diagram. Let's show you how crazy and Excel and Lotus Notes based this, this process is.
Isn't it insane that this is the way this happens? You know, it's time for a better, something better. And that's me. Uh, and often I'd say the vast majority of the time that spaghetti diagram is a grotesque and kind of disrespectful oversimplification of the reality. You know, you're trying to dumb it down so that an investor can appreciate there's a problem that needs but often you're not doing justice to the actual situation you're characterizing.
The existing constituents in that market as being kind of clueless. And that's rarely satisfying to me. It's there's an account. Maybe this again, a market structure problem, an incentive problem, a coordination problem, but it's rarely the case. It's just that people are idiots and have just consented to live in the Stone Age because they like it there.
Logan: to live in the stone age because they like it there.
First act or second act of your career as a CEO and founder when you're looking at it. So I assume you have novel insights around what the way things are and how things came to be around that area. But when you're looking at net new markets. Are there specific questions that you'll ask of the entrepreneur or of industry people to understand that the way why things are the way that they are in the different incentive structures?
Like, how do you tease out when it's outside of a domain that you've [00:08:00] lived really well,
Marcus: Yeah. So with respect to insurance, I joined battery with the explicit intention of not being the insurance guy. I failed in that. I am the insurance guy, uh, there. Um, and so anything, even with a whiff of insurance. Uh, I end up getting a look at which I appreciate, and of course I'm opinionated on forever after spending 20 years deep in the salt mine of serving that industry, I will always see the world, the business, the startup world, certainly through the through the glass of that insurance experience.
So I think they're very deep similarities to other verticals. We can talk a bit about that. But, um, what I like to do actually when encountering with the founder, if there's something that's intriguing, Is, um, is go through sometimes that they're taken aback by it, but usually they appreciate a kind of, I call it like a cross examination. let me restate the premise as I understand it. Um, like how well substantiated is that? Is that based on your experience? Or do you regard that as, uh, is there additional facts to be known? What is the boundary of your confidence? And what are the, what are the unknowns? What are the frontiers of what you don't understand right here?
What is the causality between it? This claim and this other claim, and it's not unlike, well, my training was as a professional philosopher, believe it or not, there are such things, and the thing that, and in philosophy, of course, there's nothing tangible, there's no, you're talking about, you know, eternal ideas that people have been grappling with for thousands of years, and you're looking for very precise inferential connections between different kinds of claims, and a lot of times the argument will be, it's not that your claim is wrong, it's just that you've come from premise A and B to conclusion C, In a way that's not warranted, you have not thought about these other possibilities or, or whatever it might be.
And that training, I find, has been, was relevant to being a CEO, surprisingly. But it's even more relevant, I think, to, um, the task of trying to, trying to discern if there's a coherent strategy, uh, behind the founder's idea. I want to say, again, uh, coherent strategy is, to me, essential. Um, there are examples that I see of extraordinarily successful businesses that are not that clearly expressed in terms of that strategy. [00:10:00] you know, but that's, I think that's luck. I think it's ultimately a kind of luck. Uh, and it's, it's a very hard thing to underwrite from the outside. Um, but I get very attracted to those founders that, um, not only are coherent in their reasoning, but embrace. That kind of pressure, that kind of intellectual pressure, and don't, don't take offense at it.
Uh, and it's a very, very negative anti pattern, uh, to find to say, I'm already the authority, why all this questioning? And sometimes you get that vibe too.
Logan: thought too. That was the one thing I was good at. Useless. Fortunately, uh, there was
Marcus: I'll give you the very short version of the bio. I was a very good student, uh, was the one thing I was good at, was extremely over educated. Uh, but useless effectively. Fortunately, uh, there was a, there was that moment in, in the late nineties where McKinsey took sympathy and was also strapped for talent and said, well, you have a doctorate in philosophy that could be relevant to advising corporate executives.
That's totally absurd, but that's what they thought at the time. And, uh, they took a very. Let's say in insecure overachiever persona, which I still embrace, uh, and said, why don't we show you the world that you can pay off your student Uh, so I ended up doing that briefly at the center of the universe, uh, in the year 2000 was of course here in Silicon Valley.
So I followed the basic pattern and found my way out here, worked for, uh, Aribo, which was the most compelling software company of its time, or one of the most. It was the era of Priceline and the advent of Amazon. But, you know, but in the world of B2B commerce, Ariba was the name when public in 1996 was at a 42 billion market cap in 1999 on less than 200 million of revenue.
It was a different era. Um, and everyone thought, you know, the world will be irrevocably changed and we'll be at the heart of it. Um, and, uh, To my astonishment, you know, to my about my own self a year later, I realized I was put on this earth to be a software entrepreneur [00:12:00] met four or five other brilliant co founders.
And and we set off to start a company in 2001. It's very easy to date. Our first week in the office was two weeks after 9 11. Uh, and it was a nuclear winner. Uh, and it was a very, very, very hard also, you know, the singular experience of my professional life.
Logan: So uh, it. was astonishing to
Marcus: So, uh, it was astonishing to me, um, that, you know, Uh, so much capital, so much enthusiasm, so much talent and intellect had been applied on a basically an incorrect theory. So I'll get, I'll tell you what that theory was. It sounds kind of quaint now, 20 some years later. But, uh, there were huge, you know, conventions, you know, where thousands of professionals would aggregate around this theory.
And that theory was, look how the internet has changed consumer life. Um, and entire job professions are being euthanized or transformed, like the travel agent or the retail, the retailer. Well, the same thing is going to happen to B2B commerce, which is an order of magnitude greater. And it is an inevitability that within a small number of years, there will be a number of, of, uh, Of kind of industry consortium led, uh, B to B marketplaces where all the commerce that today is happening through, you know, over EDI and through human interaction, an exchange of spreadsheets are going to happen in these internet driven nexuses.
Um, and there will be one for oil and gas. There'll be one for consumer packaged goods. There'll be one for the insurance industry. And, um, everybody believed that you could have pulled. All 10, 000 people that went to the conferences that talked about this in the, in the year 2000 or 99. And not every one of them would have bet their firstborn child that this was going to happen.
And it was evident to not only me, but others that were very close to it, that this was not going to happen. And yet, this company was being astronomically rewarded for powering this [00:14:00] inevitability. So that's what triggered the idea. You know, maybe, maybe there's another way. Um, so that's half of it. The other half was that I was, let's just say repulsed, you know, by a kind of excess, a kind of, kind of unhinged exuberance that applied during that time.
And, uh, I took away a lesson that I think is just self evidently true now that whenever you have huge amounts of wealth, being created in too short a period of time, everything goes off the rails. People can't think straight. Relationships fall apart. No one can build anything. No one can concentrate.
Nothing happens. Nothing good happens. Right? Everyone is just obsessed with rising asset values and, and, you know, doing the calculation of what it means for their own net worth. Envisioning the plane and the private jet that they're gonna have and the divorce that now is necessary. All of that kind of insanity is completely counterproductive And it's just common sense that things of substance, things that are durable, things that overcome fundamental challenges, are slow, they're unglamorous, they take a long time to build, and that's completely the wrong setting in which those things happen. So, it did not take a lot of prescience in that year to realize this is, this party's going to stop, uh, and it'll, it'll stop abruptly.
And when that happens, there will be a new opportunity, a new kind of sobriety with which to build things of quality. And uh, we kind of, my, my co founders and I really tracked to that and maybe to an extreme degree. Some things we did were embarrassing, like, you know, we're going to pull, you know, we're going to tighten our belts to such an extreme degree.
And we know we're going to eat rice and beans for the next three years. And we kind of made this sort of austerity ration ethos part of our company and proud of it, as well as it's a little bit embarrassing. Uh, but it was of the times, uh, it was of a time when extreme excess and a recognition that things had to be thought, rethought.
So it was those two things, a sense that maybe we can come up [00:16:00] with a more coherent strategy that's actually, that actually, uh, is not just based on wishful thinking and solve a real problem as opposed to an aspirational problem. Then secondly, maybe we can form a different kind of culture, one that's founded on substance.
Logan: I'm curious, uh, the, the, the portals and all of that stuff, the B2B portals and the supplier networks and all of that stuff. I mean, Ariba ended up being a successful business, got acquired by SAP for 10. Okay. Okay. Sorry. Yeah, I,
Marcus: But real money. Yeah.
Logan: always confuse, uh, uh, the purchase price of, of Ariba with, uh, what, what else did I say?
Success factors with, uh, uh, concur. All of them sort of blend together in my mind, all of a similar vintage of time. But, um, yeah. Some of the elements of it were an inevitability that, hey, the supplier network can come together and people are going to purchase within their Reba network and all of that stuff.
What was it that you saw on the ground that, hey, it's not going to be as simple as the narrative around Priceline or Kayak or it's just the B2B world is different. Like, what did you actually see there?
Marcus: yeah, there's, uh, we can go quite deep on this. I'll try to, um, not lose myself in the intricacies, but, um. that, the market has a certain structure to it by virtue of, you know, of the incentives that are involved, right? And, uh, sometimes it's very simple where there's just a friction that you can eliminate just by getting everybody in the same I have vintage beanie babies and you are a collector, but I, you know, we live in various different parts of the world and now we find each other very easily, right? And so the internet solved that problem in a transparent way. Both of us are highly motivated to find each other as counterparties.
That's not the case in the consumer electronics companies, you know, between a tier one supplier and a manufacturer. They don't have trouble finding each other. They already know who each other are and the internet is not, essentially offers no value. Or another example, the one that I know best is the insurance industry, right?
Um, the vast majority, well, let's say effectively all commercial insurance, it's not quite all, but effectively all commercial insurance is [00:18:00] intermediated by a broker. And naively, you know, you would say the kind of tech bro guests would be like, why do you need these guys? Right. We don't need travel agents
Logan: we got rid of, Kayak got rid of
Marcus: Why do we need travel agents? We don't need insurance brokers. They're just like information, paper shufflers. You know, like, why do we need these people? And we should, you know, we should just euthanize them all. Um, it's very good reasons why they don't. It's not the way that the purchases are made. There's a kind of informational.
Uh, decoding that they provide, uh, and they are profoundly entrenched in, in the industry in a way that's not, it's not easy to displace and there have been many failed efforts and a lot of wasted venture capital on, on the belief that that that's not the case. So there's, there are industry constituents that are, have a lot of market power that are not willing to, uh, that are not willing to go away and that are much more closely, that are closely attached to the demand that, um, that the demand in this case, consumers or businesses appreciate.
Um, and that are, that you cannot satisfy us easily with, you know, a technology solution alone. Um, so this combination of like very weak value proposition and then not considering all the other market structure and intermediaries, uh, but led to a very naive theory about where B2B marketplaces would, it would evolve.
There was just a sense this ought to exist, but without saying, but who benefits and who will be the losers if such a thing evolved? And why is this any better than it ought to and it ought to be? I'll give you just one more example. Was there was a theory that pricing, you know, would be transformed by the Internet.
And there was a brief period where, uh, where VCs and entrepreneurs were obsessed with the idea of auctions. this is a, this is the perfect form of price discovery. After all, look at the public equity markets. That's a, it's a daily auction for every, every security and look how efficient that is.
So isn't that the way that, you know, timber contracts should be done? They should be done by auctions or insurance contracts. Everything should just be done by bidding. And there were a lot of smart people who built very sophisticated, incredibly complex kind of algorithms for all these different species of auction [00:20:00] types and say, we're going to now conduct these.
It kind of reminds you of, uh, what you'll see in like the web three world right
Logan: you know,
Marcus: uh, where insanely intricate kind of financial instruments that Make a certain kind of intellectual sense, but have like no bearing to the way that people actually think about mortgages and consumer loans, right? The same kind of thing applied to this auction idea.
And so, you know, a lot of capital, uh, was spent on trying to instantiate auctions for and none of them got anywhere, So that was, so witnessing that happening and having kind of a front view seat to seeing that, like the disconnect between the ideology or the aspiration, and then what actual enterprises on the other side were doing and trying to puzzle out.
What is this internet thing and why is it relevant to our, to my consumer electronics business or my oil and gas business? So witnessing the, just the depth of that disconnect, like a Grand Canyon of, uh, of confusion said, well, there's, you know, if I want to be an entrepreneur, I see the incredible excitement of that and we can talk about that separately.
It has to be done in a fundamentally different way. It has to be done closer to the end market, not in the ivory tower.
Logan: It's hard not to hear all this and at least think about you reference web three, but then also artificial intelligence as well. And what's going on right now as someone that lived in such a, um, uh, close proximity to all of the things that went on over the course of, of 99, um, how do you think about now looking at.
Maybe AI is an example. Where do you draw parallels between that and now versus what is totally different and you need to have a first principles kind of novel view of what's going on,
Marcus: Well, I think like many people, you know, within a few square miles of us here, we don't dazzled by the potential, uh, of AI. There are things that seem absolutely magical. Um,
Logan: which probably was true of the internet, right?
Marcus: absolutely now. Yeah, absolutely. And so, uh, but the same questions apply there. They're the same fundamental questions. So what is the use case, right?
What is what [00:22:00] particular process or human practice that exists today? Are you hoping to displace with something better? Uh, and, um, first of all, how certain are we are that it is in fact better? Is it actually better? Uh, and, uh, and then That's not that only, that's only the first question that many like, well, what other economic incentives are involved, maybe you're better, but at what price, uh, you know, and that price could be dollars, but it could also be a loss of privacy or loss of, um, you know, loss of process control or loss of a customer relationship.
So these could be very heavy price that could be paid. It's not simply enough to say, well, this kind of customer inquiry could not be a I mediated. Therefore it will happen. There's lots of reasons why it may not. And I refer again to the insurance example. Why are there still insurance agents? Because they do something that is non-obvious and useful to a huge portion of the market.
So where am I with ai? Um, I, uh, know the limits of my own understanding. Uh, and so all the kind of foundational discussions that are happening with the huge that have, you let's say, um, let low level, uh, foundational technology. Very hard to understand without being a practitioner. And I know a lot of practitioners, and even they say.
It's, you know, the pace of change is, it's very hard to parse. No one really knows Um, I, I appraise it at the level of, well, what are the use cases that I know? I, I like to focus on vertical applications. One of the motivations for Guidewire was a kind of higher order belief that the most important software in business, most, most important enterprise applications will be vertically and that's a whole kind of separate sub thesis, right? But I think the most important, most valuable, most mission critical software by definition is specific to an industry. So I like to look through things like, let me at least appraise the value of this tech as it applies to insurance. And, um, and here it's very much experimental mode.
Lots of theoretical applications, policyholder service, to underwriting evaluation, to pricing calculation, etc. um, all in the experimental phase. None of it in run rate [00:24:00] you know, OPEX right now for, for insurers. Um, all very experimental. And so that kind of gives me a signal for where I think is the state overall.
Um, but I will say it's qualitatively different than, again, to go back to Web3. You know, there was a theory, uh, let's say four, five, six years ago, that, uh, that the blockchain would transform all kinds of financial services, including insurance. Now, I was a little dubious, but I said, let's, let me look at it from first principles.
Is this really happening? And let's talk about the insurance use cases. And one use case that was discussed was reinsurance contracts. So reinsurance, as you know, I'm sure is, you know, insurance for insurance, right? It's a risk transfer from an insurance company to a set of a smaller set of reinsurers that take that risk,
Logan: Mostly in Bermuda,
Marcus: uh, often in Bermuda, right?
For regulatory reasons, historical reasons. Um, and in Europe, um, and the theory was, well, instead of these contracts, which are basically instantiated, you know, in paper documents, in legal, in their legal contracts, like policies, these, these happen on a blockchain because then when you are trying to settle up after, uh, you know, a catastrophe, a tropical storm, then the blockchain will automatically execute and make sure everyone gets the right amount, right?
That was one of the use cases. And if you weren't, if you didn't know anything about the insurance industry, you say, yeah, that sounds better than paper, right? No insurer has adopted this and never will because everybody knows their counterparties. Everyone knows, uh, there's only a small number of possible counterparties.
They've been doing business for a very long time for hundreds of millions or billions of dollars. Uh, and that reconciliation is not something they need any computational help with, right? It's, it's all, quite doable in Excel. So the idea that they were now going to entrust this kind of, this new exotic decentralized instrument is a solution for a problem that doesn't exist.
And sure enough, the actual contribution of blockchain to the insurance industry has been not little, it's been zero, absolute zero. [00:26:00] So in contrast with that, uh, obviously AI but I, I would be reckless for me to. put the outer bound on it right It could be incremental, helpful in a few areas that are pretty obvious.
Um, I don't think it will be transformational, uh, but it could be meaningful and, um, I'm certainly paying close attention.
Logan: So, so, backing up to the, the founding experience. So you got together with five other
Marcus: That's right. There were six of us.
Logan: six of you going to start a company, which is high. Uh, how did, how did the six of you sort of come together and target insurance as a problem?
Marcus: Yeah. So, uh, we knew each other from the Ariba experience. There were two others, uh, who ultimately became CTO and, and head of engineering, uh, who were from a company called Kana, uh, that did a kind of like high volume, uh, response center,
Logan: Call center.
Marcus: Uh, it was, uh, quite ahead of its time, very successful other venture backed company.
Uh, the six of us were together. That does seem like a large group, but I will tell you, and I have said now for 20 years, the company would have failed, uh, unequivocally without doubt. If any one of the six of us were not
Logan: and why was that the case
Marcus: because that is so hard. There were so many things to do, and we complimented each other's skills, uh, each other's, you know, cognitive, uh, lapses, uh, so, so well, uh, that, um, that each of us kind of covered an essential part of the waterfront that was necessary.
And, uh, these guys are my brothers. You know, we, we get together still very, very close. We've, we shared an experience that I say with no disrespect from people who have actually been in harm's way, I would say is like, uh, having been through a war together, and it's a bond that, you know, that I treasure. Uh, now, how do we come together for insurance?
The second part of your question. Um, well again, we had this theory that, uh, the conventional wisdom at that time for enterprise software was you have to invent a new three letter acronym. You have to find some new supply chain management, human capital management, you know, E. R. P. You have to find those are the big venture investable software categories.
Uh, [00:28:00] and you want to have maximum number of buyers, and it has to be some, you know, some huge new system. And, uh, we thought that was wrong. Um, not that you couldn't build, not that there weren't such markets, but that they systematically, that was systematically neglecting some of the most important mission critical problems that enterprises would face.
But again, those problems by definition almost were specific to an industry. The things that a oil and gas company care about most are specific to oil and gas. Things that an insurance company cares about most specific to insurance. And, um, so we said, if we're going to pick a vertical application, Then we're going to serve just one industry for the rest of this company's life.
Well, let's pick a big one. Let's pick one that has a serious problem that we think is seriously unhappy with its incumbents. and where we can motivate a meaningful economic value proposition. And, uh, and let's also again, informed by this kind of contrarian spirit that we had, let's do everything the opposite.
Of what's happened in this dot com insanity, uh, so all of that, that formula led us to the biggest, most unglamorous, most boring insurance industry you could come up with, the insurance uh, now I say that with no disrespect, I love the insurance industry, I've been a servant of it for decades, um, it's like the punchline to a joke of, like, what's the most boring insurance industry?
problem you could think of. As it turns out insurance is fascinating, uh, and I'll elaborate on why I think that's the case and why it's fundamental to our way of life and has extraordinary room for intellectual curiosity and innovation. But at the time the economic theory was very simple, it's that you uh, Insurance companies pay out, uh, at the time, it's a roughly two trillion dollar industry, but as measured by, by aggregate premiums, it pays out, uh, about two thirds of that in, half to two thirds of that in claims.
And the systems by which that happens are ancient. They are 1980s COBOL, CICS, AS400 mainframes. Or, or mini computers and, uh, [00:30:00] that. That's uncomfortable for the people who work in those systems, but that's not the real problem. The real problem is that they're making systematic mistakes. They make a mistake in coverage, or they pay a claim that shouldn't be paid.
They wait too long because the process is so slow and the workflow is so poor that the claimant is unhappy and sues the company. So they get sued excessively. They fail to subrogate, which means claim against other insurance companies. So they make all these systematic mistakes. That, um, the cause that are deadweight economic loss And the theory is a new core system would help solve that. Now we did a lot, made a lot of mistakes, just like every young company. Um, there's a famous Mark Twain quote, good decisions are the result of experience and experience is the result of bad decisions, which is so true. Uh, But we, um, one thing we got right, a number of things we got really were identifying the boundaries of our product and saying we're going to build a core system for insurance that will, uh, be first easy to explain the noun phrase for what we built is insurance.
A property and casualty is not adorned more further than that. So our buyers would know what they know, what they were buying. We say, you have an existing one. We're here to replace it. We're not going to augment it. It's not an optimization engine or, you know, or some new category of software.
It's just a better version of what you have. And the reason you want to buy it is because you are making systematic mistakes that cause you multiple points. Of your operating and so, uh, and the way that it'll, it'll improve on that is it will make your most junior, most inexperienced claims adjuster as good as your most as your most senior and we will guide them to make the right decisions. like a wire. That will, uh, that follows you, that you trace to the right path. Now, amusingly, uh, a guidewire is also a medical [00:32:00] catheter. That's the other name you would look up. So I will share with you one of our early moments, uh, was we had a sales doc at guidewire, uh, uh, email address that you could make an inquiry.
And we got a, The first maybe five to 10 inquiries we got were people looking for medical catheters. So we would have a moment of excitement and then say, no, they're not interested
Logan: Yeah. Product market fit.
Marcus: Yeah. Yeah.
Logan: Um, you, you toyed around with a few other ideas that, uh, I think we're similar to LinkedIn, Dropbox and Salesforce, uh, were, were any of those do you think you could have executed on with the same vigor and passion and had created something that looks like those companies or was it wrong time team, whatever, if you think back on the road,
Marcus: Yeah. Yeah. The sadness of the human condition is that we only get to run the tape once. And, uh, along the no, there's no way to know. Uh, but along the way, many times we said, why did we choose a business? So punishingly
Logan: how long did it take you to your first customer?
Marcus: Uh, approximately 18 months, 18,
Logan: Yeah, probably 18 to 24 months. And you were like, we should have done something easier.
Marcus: And it was an, it was a journey so full of false summits, so many moments of, if we can only get that first customer, well, if you can only get the first three, because no one trusts the first one alone.
And if only we can get these live, and if only we can get the first customer of this scale or this particular size. And at a certain point, just realized it's just an infinite series of fall
Logan: goalposts over and
Marcus: fall summits, there will never be a moment of real satisfaction or achievement, but that's not quite true.
You have to make that for yourself, but there will be no sense that we've arrived and now we've kind of unlocked the that never arrived, Um, as for these other, uh, other ideas, you know, we thought, you know, We, we, as entrepreneurs, we discarded a lot of ideas that we thought were too obvious, too simple.
That'll be a feature of windows or there's no way we could possibly commercialize that. And so we had a lot of, a lot of those ideas and when we would see companies that improbably like a, like Salesforce or Dropbox thrive, we would say, these are ideas that we discarded in remarkably similar form because [00:34:00] we thought that they would not be defensible enough and so forth.
So we have chosen our own path we've committed our identity and our honor to it. And, uh, here we are. So we'll go the distance.
Logan: And so, so in, in picking insurance, it sounds like it was a little bit of a top down decisioning. There were those fundamental premises that you, you guys believed as a reaction to what had happened or what you had seen. Uh, but landing on insurance specifically, was it just a GDP calc down of like, Hey, this is a really big market.
It feels like an opportunity to create something
Marcus: Well, as we, all of us reflect on our lives, we realize just how random and improbable, you know, the little decision, the little butterfly's wing that caused us to marry this person or choose this career or whatever, in my case, it was that my office mate at McKinsey. So I've only worked for three companies before battery, you know, uh, McKinsey, then Ariba, and then, and then Guidewire.
Uh, my office mate assigned at random, like a college roommate. Uh, was a former actuary and over lunch, he educated me about the insurance industry. Now I had no idea about guidewire at that time or that, that aspiration, but he triggered, um, you know, he, he stimulated, let's say some thinking about, about that The second thing also at McKinsey was that when I joined in the, in the late nineties, the one project that you did not want to be on the, like the, the, the death project was called a closed file review. And that's when you were sent deep into the bowels of an insurance company and buried in paper folders.
And told to, you know, figure out why, how much, how many mistakes the insurance company was making that was leading to excess claim payments. So I took these little scraps of information and when it came time to say, okay, we're going to do something vertical. I said, well, here's a place where I think software might make a difference.
We're talking, and we have an end market that's sufficiently large, a kind of problem that, that superior software we can, we can visualize. Now that was only 1 percent of the, of the discovery. Everything else came from talking Now insurers, the insurance industry employs like two and a half million people.
So not hard to find people. And remarkably, they're very willing to talk. You just have to ask them respectfully for their time [00:36:00] and patiently explore, you know, what they're doing. So I visited, uh, you know, probably a dozen insurers in their claims operations and sat with people in their cubes. Trying to understand their current state.
And they did this for free. They did this because they were happy to have someone take a curious interest. And, um, I think that's just part of, that's just part of the, the, the journey that you have to pay. Uh, I get exasperated sometimes when I meet young enthusiastic entrepreneurs. And they, they just feel like they, they, they figured it all out in the shower.
You know, and they don't need, they don't need to be in the field. it takes a lot of field work, figure out
Logan: So how did you go about getting these people, like finding the, their email addresses or getting them to sit down with
Marcus: Oh, it's pretty trivial. Yeah, it's, it's not hard to network. And then we will just say, uh, full frontal, hey, we're trying to build a software company. We, we, we have a theory. We would be so meaningful if we could just spend some time in your operations and observe you for an hour. We have, and, uh, what we'll offer you in return is a summary of our findings.
That's all we have. Obviously, you won't pay, we can't pay. You know, are you up for it? And our hit rate on that was, I don't know, close to a hundred percent, just asked respectfully. And, uh, and we had a number of people in the early days who would spend huge amounts of time with us, just patiently explaining every facet of the industry, uh, that we, you know, just described.
Uh, and afterwards it was very, it was a very satisfying moment to, you know, have given them equity, and then for them to be amazed that it was actually worth something quite meaningful to them.
Logan: I've heard you talk about the balance sheet, uh, that you have when starting a company and how you, the, the trade offs that need to occur along that. Can you, can you elaborate on that point and how you think about the, the, the balance sheet of a founder?
Marcus: uh, you mean the, uh, you mean the allocation of energy and time
Logan: Yeah. Or like, uh, I, I, I've heard you say the head pin of demand with, with what the market wants. Yeah.
Marcus: Yeah, so it's very humbling when you start a company. Um, you realize you have no product. You have [00:38:00] no customers. You have no team. You have no brand. Uh, you have no assets. It may feel like you were all potential. So why, what is the audacity to say, nonetheless, we're going to win in this market.
So what do you have? One thing you have is an insight. You have a theory of a way that you can intersect with the market at this particular moment perfect precision. That's the one thing you have that's so precious and you have to define your market precisely, but then you have to find that, that vector of attack.
And hit it with maximum force. And the power of that when it's done, right, can change the world. Right. As we know. And it's one thing that you immediately start losing. As soon as you have a customer, as soon as you start building, make some product decisions, you know, you are starting to lose that kind of the, that infinite freedom that you have to hit with precision and, and as a company gets much larger, like guidewire is today, it's lost a lot of that.
I mean, it's a battleship now to try to turn. And hit the next thing, and therefore it's vulnerable. um, that's the most important thing to maximize. And that's, it returns I think to the point I was making earlier, Logan, that the first thing to underwrite is the, is the coherence and the precision of the It's not the team, it's not the, uh, it's not the technology. Uh, it's, it's that, uh, those things can be indicators. Obviously, successful founder has demonstrated some ability. If maybe it was luck, maybe it was insight, but I like to see that really lucidly
Logan: to 24 months without signing your first customer. Uh, how did you maintain sanity over that period of time and setting like different milestones so that you knew you were moving forward in some way, uh, without having those proof
Marcus: Yeah, it was humbling. Let's say three parts of building a business, right? Like selling, building a product, selling, getting initial customers and then the standard company building Company building stuff is fun. It's like, it's fun to pick out the logo and the t shirt colors. It's all completely irrelevant.
So you have to spend absolute minimum time on building the product. Um, several of my co two of them in particular, I think are geniuses. I, I don't say that [00:40:00] lightly and they were, they took all those interviews we just talked about and just described them and then conceived a product that it is amazing to me, they, they put into a binder, we called it the binder and it basically defined the products, the company's product strategy for the next decade.
It was a theory of what needs to be built, uh, and the sequence thereof, what was the MVP, what were the nice to haves, where we would have to satisfy existing requirements, where we could build something 10x better, and it was extremely precisely and lucidly captured in a document that we then built and defined the company's strategy for a long, long time, a decade, a decade plus, easily.
Um, then there was the go to market part. And that part was getting punched in the face every single Um, it was just, it was a level of rejection that I was psychologically unequipped for at the time. I had a prestigious education. Um, you know, I worked for a very, the top, the most prestigious consulting firm.
I had been part of like a hot Silicon Valley company. I, uh, mistakenly ascribed, uh, all of the things that come with those things to myself. And then, stripped of those, and starting again with a meaningless brand, Um, was realized if nothing, and so it was just rejected endlessly over and over again, and I would not have made it myself psychologically, emotionally without the other five of us.
So what we did is essentially make a pact, which is we don't know if we'll succeed or not, but we have committed our honor to trying, and we will have to get there over, you know, we will commit a rational period of time before we'll have to rationally give up. Um, but until then, we will not question, we will not second guess.
We will only go forward. Um, and that was essential. the second thing we did, uh, was define, of course, other measures of Uh, and so, um, you know, one of my co founders, John Regan, who was, uh, who started the company as CEO, uh, he used to tell the story about how, uh, he went to college. There was a guy, I forgot his name.
Um, but you know, who was able to date all the most beautiful [00:42:00] women on campus. How did he do it? You know, it was a mystery because he was very ordinary in every respect. And then when John asked him, you know, what is your secret? He says, I'm just the guy who asks the right? Not necessarily the most persistent, just, I just ask the most.
I overcome my own inhibitions and I ask. And, and he says, that's what we will do. We will ask. And we will just talk and, and not be, not be deterred by rejection. And incredibly, uh, this is an insurance principle, by the way. When you aggregate very small probabilities. Over, over a large enough, uh, over a large enough mass, uh, eventually you get to something like certainty.
And that's what we did. We talked to every company, every individual that we could possibly network our way in through implausibly and, um, eventually found just the right combination of willingness, risk taking, the right new executive at the right moment in that company's history that they were willing to take a risk.
And then we dug our foot into that toehold. And, you know, use it to get to the next step.
Logan: One of the lessons or I've heard you speak about the parable of a horse and how that informed, uh, your perspective on the journey.
And can you, can you, can you tell that story and about the different milestones with the first customer and all that
Marcus: Sure. Do you want me to tell the parable again? Okay. So this is not of my invention. This is like, uh, I don't know if it's apocryphal, but it's supposedly, uh, a Chinese parable that, uh, you know, that there was a farmer and he, um, and he had a horse that was one of his important assets. And then the horse ran away one day and, um, you know, his, his neighbor said, Oh, what a tragedy that that's happened.
And he says, well, maybe, yes, maybe no, we'll see. And then the horse returned, and it returned with a mate, another wild horse that it found. So now he had two horses. And the, uh, his neighbor said, how fortunate that this has happened to you. And he said, ah, maybe yes, maybe no, we'll see. And then one day his son was riding on one of the horses in the field, and then broke his leg.
He said, ah, what a tragedy. He said, ah, maybe yes, maybe no. And then a war was declared, uh, and all the young men of serviceable age were sent out to war and, you [00:44:00] uh, with all the risks associated, and they said, how fortunate that your son does not have to go said, well, maybe, yes, maybe. And so, uh, The story is, um, one doesn't really know the meaning of any event, good or bad, uh, at the time that it Um, things are never as good as they seem, they're never as bad as they seem, and internalizing that is a very important kind of life maturity. I think it's essential for a founder, because You're having to regulate your emotions from hyper excitement and hyper despair all the time and learning to, to blunt the highs and the lows is important to, to, to tracking the truth of what you were trying to build.
Now in Guidewire's case, what was our example? We had, we had those highs and lows. We had those early customers, we had those first early customers. Um, you know, customer number one was, uh, called CNA. It's a huge, at the time, 12 billion market cap, uh, 12 billion premium. Insurance company in Chicago, you know, unbelievable how improbable that they would buy from us at a multimillion dollar license.
You know, we were absolutely ecstatic. it turned out it took another almost 18 months, two years before customer after that was so much harder and the implementation was punishingly difficult because we had none of the assets of a real software company at that Um, we had, uh, the most tragic thing or not tragic.
The most painful thing happened to the company eight or nine years in, uh, in 2000, uh, in 2009 or 2000. Now I've already forgotten, I think 2008. On two days before Christmas, we were sued by our primary competitor, Accenture. it was a very low blow. It was very dirty, dirty way to conduct business. They asserted a business method patent against us.
And, uh, long story short, uh, our customers and prospects felt we cannot buy from you. Because it's not that the lawsuit has any merit. We're, we're insurance companies. We're used to getting sued all the time for all kinds of nonsense uh, that's not, it's not about the merits in the legal system.
Sometimes the bad guy wins and we cannot spend 50 million on an implementation of your software and then find that we are enjoined by the courts from using [00:46:00] it. So solve that and then come back to us. Uh, very nice for them to say again, 18 months, we and we thought it was game over.
Uh, and it's one thing for things to be game over after, you know, at year two, it's quite another thing when it's game over at year nine, you know, it's really excruciating. Um, and we thought it's what could possibly have happened that's worse than this, yet we overcame it and that's its own story. Uh, and in doing so, um, we, it, we kind of a galvanized the company to this white hot rage, a sense of moral purpose on top of, you know, business or economic purpose, we had a sense of moral purpose.
We were on a crusade. This is so unjust. We had built a better product and instead of fighting us in the market, you know, good American capitalists, they were suing us in this kind of completely shameful and dishonorable way. And, uh, we were put on this earth to prove them wrong. And it mo it unleashed a kind of intensity, a kind of bond with each other as a team at that time that was of profound significance.
It also deferred our IPO, uh, for a good two years. And that was another blessing. Because we were not as mature, uh, we would have stumbled and that's obviously terrible for a young public company. And, uh, in the end we triumphed over it. And those who had been part of that journey, that moment, were so bound to the company, were so proud of that, of that, of that outcome, that, um, had, their loyalty and their contribution to the company were far above So again, something good, it turned out to be not nearly what we thought. Something. Cataclysmic that turned out to be salvational.
Logan: salvageable.
And on the CNA point, didn't they ultimately churn and they would have deviated the product roadmap around along the way?
Marcus: Well, actually that was a different first customer. I didn't even mention that our very first customer was an insurance company called fireman's fund, which is, um, just about a half an hour North of us where we are here, Logan. Um, and they were our first trial customer and they canceled on us. I should have mentioned them as an example.
That was the [00:48:00] first, uh, horse running away moment they canceled on us. And again, It was a blessing because that product was not right. Their conception of what we were building was to front end their existing system. And it was then that we had the realization, we have to completely replace. For better or worse, we are saying, full tilt, you must completely kill the existing And we wouldn't have done that there, and we would have built the wrong product and Now, none of this was orchestrated or It was serendipity, it's part of a much larger humbling that I think is, is just a fundamental part of what you have to go through as a founder.
Logan: you weren't always the CEO and John, John started as the CEO, but at one point the board wanted to bring in an outside CEO and they did,
Marcus: Yeah.
Logan: but it actually proved to be beneficial.
Marcus: another one of those cases. Uh, we, let's see the, the quick backstory is the board at the time. This is a very different era in Silicon Valley. Now this would seem silly to you and me, but at the time it was thought, well, a couple of smart kids can come up with a good idea for a company, but once it gets serious, you have to bring in, you know, some, someone with gray hair that worked at Siebel or
Logan: Cisco, Apple, Salesforce actually even did it.
People don't know that it's lost to history, but betting off stepped down for a little
Marcus: And now just the stupidity of that is, uh, is. Well established, but it prevailed at the time and, you know, we had shaken the hand of the devil. We didn't get to say we changed our mind. We were good, you know, we were good about it and said, Okay, I guess this is gonna have to happen. part of the stupidity of that was realizing, not realizing that a company that hadn't really established itself was not able to attract phenomenal talent.
So the CEOs that we were able to get were all Let's just put it bluntly, terrible. Uh, and eventually we picked one, uh, as a compromise, um, who will remain nameless, and uh, it was a disaster. It was an absolute disaster, and over 11 months nearly destroyed everything that we had built up to that Uh, so you would say, terrible event, you know, how unlucky.
We had to kill that bad [00:50:00] theory, and so when it became self evident that the choice that the board had made was so terrible, Uh, we had decisively silenced that, that argument, uh, and never had to encounter Mm
Logan: Five, uh, brothers, as you said, that could support along the way, but, um, the perseverance and kind of powering through, was there any, is there anything that you can extrapolate from that experience that is transferable to founders listening today, maybe going through their own
Marcus: I mean, I'm sure you many of your other guests have talked about the way that founder relationships can deteriorate and that can that can be tragic and lead to otherwise great company falling apart. It's very easy to see how that would happen. Um, and it is miraculous that it did not happen to us.
I think we had, we had a set of principles, though, that were very, very foundational that carried us through. Uh, just elaborate them quickly. You know, the first was integrity. So we will always just speak the plain truth. And it's actually not as easy as it sounds, because it's easy to tell the truth when things are going well, you have good news to share.
When things are not, it's, uh, it's easy to lie, it's easy to lie to yourselves. And, um, but that was a bedrock principle. Secondly was rationality, meaning, we're going to make decisions based on facts and logic. How else do people, human beings make decisions? Besides facts and logics, lots of stupid ways.
They appeal to their gut instinct. They apply shallow pattern recognition. Uh, they get influenced by some other, um, you know, charismatic person who tells them you should go east, not west. All these other dumb ways. And so we will not do that. We will hold ourselves accountable. to a certain standard of, of, evidence in before we make choices.
Um, and we will hold each other And then finally collegiality, meaning we'll treat each other as, as ends, not, not means. Um, and the, those principles, we really, we were really, were sorely tested because some of the, the trials that I just described to you, Um, but because they were so, um, so vocalized, so, so [00:52:00] frequently attested to, they really carried us through and a lot of companies I see, you know, they come up with their values, but the values are vacuous, know, I see it all the time and then it's particularly pernicious when you have a ceo who spouts the values and then everyone can tell this guy is a hypocrite.
Then the values are worse than vacuous. There's a sense this whole thing is kind of, uh, of a sham, you know, we, we, we talk the talk, but ultimately it's about the almighty dollar or it's about whatever John, the CEO wants and all of his values to just so much, you know, so much nonsense. And I've seen, I witnessed that too.
So we were very true to that and that carried us through a lot of the tensions. But it did not save us from all of them. I mean, in year eight, you know, the first Mark, uh, Mark Shaw, it was very brilliant. He's one of the, he was a genius on the team. Uh, he went on to, uh, you know, to be the co founder Strava, which is a, you know, very impactful company.
Um, and then he's onto his next and, you know, it's, it's been a privilege to work with him, but he left the company and I felt betrayed, uh, and I'm not saying anything I didn't say to him with great passion at the time. And he said, dude, I did not. been seven years. I didn't say the rest of my life.
And I said, but we're not done. And he said, when are we done? And I said, I have no idea. But we're not done now. Where are you going? And he said, well, life is too short. I've got other things to do. And I took it very bitterly. And very hard. Um, and I may have said things that I have had time to apologize for since.
And then the same thing happened when, when John left and, and the others eventually. Um, and the, the last of my co founders left, I think around year I went, uh, 18 years. Um, and, uh, even then I did not feel it was anywhere close
Logan: the culture point in coming up with the values around, uh, which you actually, um, are willing to do the, what you say, how did you guys go about landing on those and when evaluating companies today, how do you assess whether or not they're, they're acting on the [00:54:00] values that they
Marcus: I think there's a confusion between kind of values and So values are actually moral principles, right? So sometimes when you see a list of companies values, they'll include things like agility and decisiveness. Uh, and, you know, those things are. good. Um, they are general kind of principles for how you should kind of biases in action, but they're not moral values.
A moral value is I will uphold this even when it is not in my interest to do so. Right. And that's an important distinction. Why does that matter so much? Well, it turns out that I have a theory that what binds people to a collective is not actually success. What binds them is a sense of us are two things that are much more powerful than just succeeding together.
As fun as that is. The two things that really bind are shared suffering, shared difficulty or overcoming, hopefully not excruciating suffering, but going through adversity together, and then a sense um, of equal moral conviction. Those two are the real binding and that's highly informed by my own entrepreneurial journey.
But I, I could give you other examples where I've observed it. Um, So I think we chose values that had a moral character to them. And ones that actually we had to make decisions about. That actually informed the choices that we had to make along the Um, In very garden variety respects, you know, our first version of our policy system did not perform.
There was an architectural flaw. Not worth going into now, but essentially the product did not perform and to go and say, there was no ambiguity about what we had to do. We have to, we've enlisted these early anchor customers. We've made promises. The product does not do what it has to do. There was no calculus, but what will this mean to our investors?
And what will they think in our plan? And it didn't matter. Those things were all below the line. What mattered is we made a promise and now we couldn't fulfill it on the terms that we had said. So we simply had to tell them. And believe me, it was very tempting to try to fudge it, you know, to try to. You know, work around that, that truth, but the truth was, was, was binary [00:56:00] and we were either going to tell the truth or we weren't.
And the fact that we all knew that we had made that pledge, it just made it so simple. We didn't agonize over it. We agonized about what we would, about the fall, the fallout from that. But the choice itself was, completely dispositive.
Logan: How did you balance through that, all these ups and downs being, uh, optimistic and galvanizing to the employee base while also being honest about the challenges you guys are
Marcus: Yeah, I mean, we turned it a little, it was a little bit of a joke. Uh, my brand was, got to be a little bit silly at times, but I would always say, I have nothing to offer, but here. That's all we have. Um, a little, a phrase that got associated with me was, uh, we're gonna tunnel through granite.
And what that meant was, you know, if you're trying to get around a mountain, you know, maybe you can find a way around it. Maybe you can find a secret passageway or a pass. I said, better or worse, that's not our strategy. We're gonna go straight through the rock face and it'll be very, very hard. But that'll be our reward.
And, uh, I would be often asked, so what's on the other side? of this granite. And I'd say, there is no other site. There's only granite. It's infinite granite. That's all we're going to get to do. And of course that was a little bit of, it was, it was a humor to it, but it also set, I think everyone's understanding in the It said, you don't have to be here. I mean, you have, if you don't find intrinsic joy in building a great product and living up to it. And I will tell you all, we will talk about all the reasons that we serve a market that matters and we will pay you a great living wage to take care of your family. But if that's not enough, I have nothing more to offer you.
And I, and by our very first principle of integrity, I cannot promise you anything beyond that about the future. Now, when it all worked out improbably, I, it was a moment of such pure joy. But I will tell you that in 2001, when we started the company, uh, we documented this. In fact, we said we will never go public.
Like that's just, that's a fantasy. We don't know what will happen. All we, we could just have to put our faith into like, we'll build something of value and sort itself out at some moment in the future. So I think we had an extreme version of [00:58:00] this kind of, you have to enjoy the journey principle.
Um, and we made it part of the brand including in our recruiting. So for example, you know, we would say, uh, look, we are half an hour away from Cupertino. That's the most interesting and, and. the biggest company in the world. We are 20 minutes away from Mountain View, uh, where you can work for Google, which is doing something extraordinary and Facebook.
And, you know, do none of those things. Your, your roommate will never know what company you do. Your mother will never be proud of you for working for this company. We will never go public. We will never be able to offer you any of the perks that these companies will offer. We have nothing of that to offer you.
All we have to offer you is we're going to build software as a craft. You're going to be treated with great respect. You will know honestly, exactly where things are at all times. And, uh, you will be treated as an end, not a mean. That's all I have. And if that's not enough, sorry. And to my astonishment, it was enough.
It was enough to get very talented, exceptionally dedicated people to work for an unreasonably long period of time. And that to me is one of the, the kind of like wonderful unfoldings of my life to be
Logan: you you went five years without the other co founders and, and
Marcus: But yeah, I mean, more than that, depending how you count, because they were all in various stages of disengagement after year 10. But
Logan: um, what, what ultimately caused you to step back and feel like at least your journey as a full time day to day person at guidewire was done.
Marcus: I wanted to die in the saddle and I assume that would be the case. Um, it was part of my spiel talking to employees or to customers that this is my life's work. I'm here until I'm no longer able Uh, what, what changed is that, um, well, there was an insider baseball story about what happened with, with my board that, know, it wouldn't be appropriate to talk in this forum about.
Uh, but, uh, the more important proximate cause was, was actually [01:00:00] exhaustion. Um, and I made mistakes in that respect. I, because it was so important to the way that we sold that I would be committal. We, we, as a company were committal and I tried to exemplify that. So when I saw a customer, um, I would say, I am at your disposal.
Anytime I had the little ritual, which is now seems quaint, but I would pull out my business card and I would say, this is my phone number. There was no time, no, never think about the time zone, you text me or call me and I will always answer and I will always be here and 99 percent of the time that was sufficient as a gesture, but 1 percent of the time it was, uh, we'd like you to come and you need to get to Wisconsin, you know, this week to talk to us and as we got to a large number of customers that 1 percent of the time ended up being quite demanding and I, and then we had customers in Australia and Germany know, in France and in the UK.
Okay. And I ended up, um, punishing myself, uh, by trying to live up to that promise because I felt what, I felt like if I were not to do this, something fundamental in the company would, would fall apart. I think I was wrong about that. I think I should have evolved to something more sensible. Uh, and I think I hurt the company indirectly by, by being in a state of so, of exhaustion, trying to live up to that principle.
Long story short, or that was already the long part of the story. I said, I, I have to, I have to change. And I, I'm not, I, I need to rest. 18 years is a long time. Um, and, uh, that was a very poignant moment to decide to do that.
Logan: and and what was the path that took you into investing?
Marcus: um, you know, the first 12 years of the company, up until, so I, or 11 years, our IPO was in 2012, we were the first one in January but I would say up until then, I, uh, did not talk to other, to other founders, it was kind of harder to connect with them than it would be today. Um, there weren't all the kind of, you know, support groups and forums and podcasts, wonderful podcasts and things like that to interact with.
It was a lonelier journey. Now, I had my [01:02:00] brothers and the, and the, and the company, but very little perspective on what was happening with The company then goes public quite successfully. So, yeah. Astonishingly successfully. And then suddenly, um, we've kind of made it onto a public stage. Uh, and I was, you know, started getting all these invitations to just to interact with other founders, be advisor, et cetera.
And I took on a few of those. I joined a few boards, et cetera, which was again, in the context of working so much. It was time I didn't really have to spare, but I did. And as a result, um, I just came to realize how, um, how much parallel there was to this journey that I had been on. And how, um, how much, how meaningful it was to interact with others that were on their own version of it.
And I, uh, over the years I said, whatever I do, I want to be around more, more founders. They are, maybe they're insane, but they are the most passionate, dynamic people in the world. They are the agents of history. There's some self fashioning and grandiosity to my saying that, but that's how I feel. And I want to be, I want to meet more of them.
And I want to meet them in a systematic fashion, not just, you know, who knows happens to know who. So therefore, if I'm not going to start another company, if I'm not going to die in the saddle in my, in my company, I want to be attached to a platform where I get to meet the best. And, uh, and so I had a few offers to join, you know, the partnership of different firms, uh, I had an affinity to Battery.
They led my company, Series C, and, um, you know, I had tremendous regard for Neeraj, whom, of course, you know well, and, uh, one thing led to another productively, and it has delivered on that. Uh, over the last 18 months, I've met, you know, 200 founders, and, uh, every one of them has been rewarding.
Logan: I spoke to some of the entrepreneurs you work with and one founder in particular highlighted that, um, one of the skills you've been helpful in assisting them with is, uh, board meetings and setting expectations of your investors.
Uh, can you, can you elaborate on philosophically what you view as the role of a board and a board meeting and the kind of counsel [01:04:00] you give around that
Marcus: Yeah. The simplest thing to start, the simplest place to start is a board very, very rarely adds to a business, but it's trivial for it to add drag. And so the most important thing, kind of Hippocratic Oath, do no harm. Uh, not every, not every investor has that philosophy. It's very much my philosophy.
Um, that said, uh, a board can do something quite powerful. Uh, two things I think that are very valuable. One is it sets a kind of cadence for the company. It's a clock. Right? Um, that we made these promises last quarter, where do we stand with them this quarter? And a company, especially in the kind of nip and tuck of a startup frenzy, can kind of lose that, that internal cadence, that, that, that self measurement that a board very naturally Um, and I, I can see a lot of value if that's, if that's embraced, and it's not treated as this homework assignment that comes up every 13 weeks. Uh, the second thing on occasion is it can add, provide a forum for a certain kind of provocation. And, you know, we were talking earlier about strategic coherence, You know, if you're just operating your company, you never come back to question the first principles you know, you had a theory of the market, you built a product, and now you have customers and you have revenue, and there's a million things to decide from that point.
But coming back to how, how durable or how, how, um, enduring. Were some of those initial principles. Do they still hold? Do they hold the same degree? we still have the same kind of edge or excellence that we think we did? Or why do our customers really like these kinds of questions? A company doesn't have a natural moment to ask itself.
It's too busy doing other things, and a good board will actually pressure those hard and insist on either revalidating or will say, I think we're smoking crack about this. I don't think it's true anymore. And who else would do that? Yeah. Right. Um, and the more intense and kind of, uh, domineering the CEO is the less likely anyone on his own team or her own team is going to ask that question.
And so a board can do that. And some of those questions are the most[01:06:00]
Logan: in teasing out a good board member then, or picking the investor you get to work with, assuming you have choice, what, um, what things would you ask or try to vet to see if they're going to be additive in that regard?
Marcus: It's pretty simple. The most important thing for a director and therefore an investor, uh, is deep alignment. Um, and notice the four things that are not on that list. Uh, valuation that the investor offered you, uh, the, uh, portfolio support that that firm is going to give you, uh, the reputation of that investor, um, all of that essentially a reputation of the firm, essentially all of that's irrelevant or let's just say very, very incremental, very incremental.
And yet that's the thing that I see founders obsess about. One of those four things, what really matters is deep alignment and deep alignment means. That on the, on the principles that govern the trajectory of this company, you fundamentally see the world in the same way that you, and that you, and that you have explored the boundaries of your, of your agreement and pressure tested that.
What are those principles? Again, market diagnosis. What is the strategy? What is our attitude towards talent? What is the timeframe in which we're getting things done? What is the financial harness in which we have to operate? Um, and, uh, you know, what kind of culture do we want to set? You know, that's the list of six things say that matter most.
And if you can achieve deep alignment with your investors. and you're bored, then you have a superpower as a founder. You can proceed with confidence. You know that when the world punches you in the face, as it will, uh, sooner or later, that you not just, they don't just have your back in some general sense that they like you and they want to support They have your back in a, in a grounded principled way because they would have done likewise. And if you don't have that, and there were long stretches of Guidewire's journey that I did not Um, and I can take my own blame for that, my own portion of the blame for that, but I did not have that for a long then it's an immense tax. exhausting and it is really punishing and that avoiding that [01:08:00] so that you can put your whole mind to the task is worth so much more than, than valuation or brand or anything I find it very difficult to convey that, uh, to founders when I talk because, you know, they're applying their own, you know, heuristics from, uh, but, uh, that's what my journey has
Logan: One of the other things I guess that, that you've alluded to, but is, um, the founder psychosis and scaling as a leader. And it sounds like there were some things that you, uh, maybe should have delegated along the way and other things, um, uh, that were, uh, Uh, I don't know, principled beliefs at which you pursued the customer example, um, I guess being most notable.
But how do you think about that scaling as a leader and managing the founder psychosis so that you can do 18 years as the leader of a business like
Marcus: Yeah, I don't, I don't know if I did not crack the code on that, certainly. And many thoughtful, super successful founders and, you know, who have, who have thought about this and achieved it better than I did. I, you have to avoid certain elements of psychosis. I talked about mine, uh, with respect to just traveling like a madman.
Um, but there are others, and that is, um, a kind of messianic hero sense, Um, I, what I learned along the way to the two principles that I learned very late in my journey that I could have learned earlier and would have spared me. Great grief. Number one. Is, um, that the most important role of the CEO after getting, once, once direction is set, the most important thing is achieving cohesion on the, on the team and having people creating a clearing.
Where the right decisions as opposed to making those decisions, creating the clearing where that decisions and that creating that clearing is a matter of space. It's also a matter of individuals knocking heads together. If that's necessary to get, to say, I don't know what the resolution of this dispute, this bullshit that you two guys are always seeming to argue about, but I need to insist that that's going to be resolved by this point on this topic within this timeframe.
And [01:10:00] to just constantly be clearing the field of that kind of. The kind of weeds that naturally grow up, you know, between when human beings interact with each other and then making those very painful assessments that someone is just not able to pull the ore that's necessary. So I don't think there's any great insight in that, but I learned it late.
The other, I think what I think is genuinely novel insight that I, uh, I don't get credit for because someone told it to me, but I I now talk about all the time, is that the power you have as a CEO. Uh, is not Fiat power. You have Fiat power, meaning you can say the t shirts going to be this color. We're going to go North.
We're not going to go South. Right. The power of the CEO is the power of agenda. You get to decide. What is the agenda of this company? What is the agenda of every meeting? What are we talking about? What is a priority and what is not Who was in the meeting? Who is not in the meeting? Um, when is the discussion over?
When is the discussion have to Um, that power is. Absolutely. And you have to use to the absolute maximum. So um, the, the things that we need to talk about that have to be resolved, who has to be here in this room? Have we talked about it long enough? Have we reached consensus? Have we not reached consensus?
Is consensus necessary, That is such a fundamental difference between thinking I have to make the right choice and I have advisors, but I'm going to then make the right choice to saying I have to set the agenda this decision be made well. And I, um, urge every founder or CEO that I talk to Think about that power. Think about that power and how you don't squander it.
Logan: In transitioning to the role of the CEO, how many years in was it that you took over?
Marcus: Uh, I think it took in year six or year seven. Year six or
Logan: And had the institutional or the, the experienced CEO come through at that point in time?
Marcus: He had, yeah. So that was what allowed that to happen. After, after him, it was,
Logan: In stepping up into that role, I realize you were six equals initially in the early days, but in stepping into that role, was it, was it evident before that process had taken out that you had effectively become the de [01:12:00] facto CEO or what was it that led to those
Marcus: You know, we were all very low ego as a group, and I'm so grateful for that because there's no room for it. There's no, you don't have the time to be squabbling with your egos. Um, I think, uh, it was about a division of labor. So I said, some people have to get this product right. Some people have to understand how to deliver it right.
Uh, some people have to, you know, play each of these roles and we slotted into them so cleanly and so harmoniously that it was, but there's a set of things that a CEO has to do. And that is, you know, be the principal, be the spokesperson. And be able to commit the company as necessary. Uh, and ironically, it was my unfitness for some of the other roles.
I could not design the product. I was no particular skill or experience in marketing. Um, I, you know, could not build, I could not write software, uh, that I, it was a certain kind of default quality to it. Um, which. is amusing to me now. I, I see it differently as a, as an investor and as a, founder that walked the walk.
Um, I think that much of the company is embodied in who suffers the most, um, who is rewarded, but it suffers the most. And I, I had a, I had a depth of commitment to the company that was irrational. Um, that's fine. I embrace that. And it was a bit stronger, I think, than my co founders. that's why I lasted much longer in it.
And therefore I think it was fitting for that reason. If, if not the others that I should have been in that role
Logan: role. I'd let you for a second kind of wax poetic about the role that insurance plays in a civil society.
I would be curious, uh, I, I know you have some high minded principles around like the purpose of insurance and, uh, yeah, what it serves as a lubricant for how we actually conduct business. Can you explain what is otherwise a fairly, I think most people, uh, don't have a, um, grand, uh, philosophical kinship to the insurance industry, but hearing you articulate it in, uh, in a philosophical manner, I [01:14:00] think is actually an interesting thing for people that maybe resent elements of the industry
Marcus: So so Warren Buffett, who has made more money from insurance than any other human being, you know, he puts it eloquently. He says insurance is a grudge purchase. People don't buy it because they want to. They buy it because they have to. It's statutory, whatever. It's just required. Um, and that's okay.
Uh, but. What does the industry do? It's risk transfer, right? So something bad happens. I can, I am buffered from that, the terrible thing that happened and what it's easy to overlook is that bad things are inevitable in the aggregate. They are inevitable. There will be storms, there will be wildfires, there will be earthquakes and other catastrophes.
These are inevitable, right? It's just who they afflict that are, that's, that's, that's random. And so if you don't have a way to pull the risk. Against those kinds of terrible things happening, they're so consequential that no person or entity can absorb them all. Then, um, people don't take on, they don't take on productive activity.
That's the pragmatic consequence. And then, it's terribly unjust that just for bad luck, some people's lives are smashed apart and they, and they, they can't proceed. The workers compensation industry, for example, in the U. S., which, you know, arose in, like, the early 20th century, it was, you have people who are doing economically fundamental, uh, and essential things.
They're building railroads. They're, they're in the coal mines. And yet, some percentage of them, like clockwork, like a law of nature, are going to be crippled as a result. Well, is our attitude as a society, too bad, you drew the short straw? Or are we going to say, that these, these are fundamental industries, if we want progress, we have to have them function?
And it is not right, that some people who draw the, drew the short straw, are then just smashed and, and, and rendered. Um, you know, uh, insolvent, right? It's just terrible. And so there's a, it's civilizational to say we need some way to buffer people against those kinds of depredations of bad luck. And it's pragmatic to say that if we don't have a, we need a way to transfer risk so that people can take on sensible, can take on risky activity.
Uh, and the, you know, the origins of the insurance industry, you may know, Logan, Logan is from the 18th century, you know, in shipping, [01:16:00] shipping was incredibly, you know, transatlantic shipping was incredibly lucrative. But also risky for piracy, storms, et So if there were no way to buffer and distribute, syndicate that risk, that extremely productive activity wouldn't happen.
Well, today you're 2024 facing vast manifold of risks, all the conventional ones that we now know very well, like crashing your car, um, or a wildfire happening, um, and then all kinds of new ones, you know, disruptions to a supply chain, terrorism, um, you know, uh, ecological collapse, et cetera. And we need a way to syndicate those risks.
And if we get that right, then we actually get to send a signal back to. The activities that we need. So there are all these, uh, very proud moments in the insurance industry. The reason we have seatbelts, the reason we have sprinklers, you know, the reason we have sprinklers in industrial buildings are because the insurance industry didn't just say these are valuable, but they priced it.
They said there's a price in risk, risk reduction that is achieved by these measures. And we are therefore able to, as a result, we're able to indemnify you at a different level of risk. Because you have taken on the productive preventative and that makes us all better off. So, we need to harness those, those, those attributes in, in order to, you know, for human progress.
The vast, the degree of underinsurance is actually terrifying. If you knew, um, just the commercial underinsurance, just commercial property on the coast are hundreds of billions of dollars. Of under insurance right
Logan: And maybe we can use Florida as an example
Marcus: in Florida, right? And so there, Florida's a classic example because it's an example of a market failure.
So people have built recklessly and then the, and the underlying level of risk has changed to the worse, right? There will be more storms, more, more. More flooding, more damage, all the terrible things that happen. By the way, people in the insurance industry sometimes call water poison because nothing causes more damage than water, right?
Uh, much worse than fire. Uh, and so, uh, there, there, what's hap, so first you have people who are facing risks that they can't possibly absorb [01:18:00] themselves. And because the industry has been misregulated, uh, the private industry has left, private insurers have left, and they have not sent the right signal. The right signal should have been to the market.
The cost of this house is not the 500, 000 it seems to be. It's actually much more than that because there is a risk of a catastrophic loss. And what has happened then instead, when those losses happen is that they've been socialized, everybody pays for it as a taxpayer. So it's a clouded signal that has led to a market failure that has led to human tragedy and has led to vast economic, economic waste.
And as opposed to very well functioning insurance markets, like we have generally in the U S in the auto insurance, where for a very modest price, I know people don't like paying it, but when you compare to. What it is protecting you against is incredibly reasonable. The final thing I would say about insurance is that it's actually a very good deal.
It's a very reasonable price. And if you, you know, people in the insurance industry with a few notable exceptions, don't get very wealthy. It's not like running a venture firm or a hedge fund, or even being an investment banker, it's a much more prosaic mature, actually kind of low return on equity industry. uh, it provides us vital social service. The thing is the future is not going to be like the past, right? We already know that. And, um, and you know, climate change is only one obvious, but not the only dimension of that. And the industry has to evolve in order to adapt to that, that fact. And that I think is what's so exciting about this moment in insure tech that it can be, um, you know, it can really contribute.
Logan: you alluded to misregulation in Florida specifically, but what role does regulation, uh, play in insurance and the mandates necessary to force social change around different things?
And so the heavy handedness of government or not letting private markets play out or not. How do you view
Marcus: actually think it's a reasonable balance in the insurance industry. There's one bizarre attribute of insurance, which is it's regulated at the state level. Property and casualty is. [01:20:00] Uh, so you have, if you're, you're, you're actually, uh, it's, it's, it creates an immense, like, mosaic of complexity that insurers have to deal with, um, for most of the big standard lines of insurance.
Is that
Logan: is that a feature or bug in your mind?
Marcus: It's interesting. I think it's, it's like 50 50, right? Um, it has a little bit of laboratories of democracy quality to it, where some states have figured this out better than others, uh, but obviously it creates a lot of inefficiency, and that's another software opportunity. It's also allowed smaller companies to thrive because they focus in a particular locale as opposed to having just a small number, an oligopoly of insurers, uh, and I think that's to the social good for the most part.
Um, so, um, so, so regulation is, is important, um, at the right level. I think I think sensible regulation is important for almost every industry, every kind of financial service in particular, but it can go too far. And when it becomes politicized as it did in Florida, it said, Ah, these rapacious insurance companies are screwing over the average Florida citizen.
Therefore, we need to kick them out of the state and put a cap on on pricing. Then you end up with market distortion and market and then everyone pays the price.
Logan: of dovetails to another thing that I know you've, you, you have thoughts on, which is the, um, aggregation of power in the technological industry right now. And, uh, just the, the, how big these businesses are today and the trade offs that we've granted for privacy and data in exchange for, uh, free
Marcus: you know, I appreciate that question. Yeah, it's like a different whole other vector of like intellectual and say, political or emotional interest for me. Um, if, if you look at academic circles, there's actually a pretty substantial corpus of, of like deep, profound concern that we have, that we're on a, on a terrible path.
And I think there's one root cause, there's one demon, you know, at the root of it all, and that's ad tech. No one could have imagined the power of ad tech. I mean, Google's founders themselves. You know, they thought they had to buy, they had to build like an enterprise search appliance. That was the only way to monetize this magical search engine they had built.[01:22:00]
They had no idea of the power of ad tech. And it has turned out to be much more lucrative, but also much more monstrous than any of us could have imagined. Uh, because it is a rapacious, infinitely insatiable monster that wants all of our information. And, um, As a result, it leads to this terrible distortions and very things that are horrible for our civil society.
And many eloquent people have like, I have opined to that effect. Um, I, I used to, you know, personalize that and say, well, if it weren't for Zuckerberg know, the founders of Instagram and so forth, then we would be in a better world. I don't think, I think that's far too simplistic. The power of ad tech is it's too compelling, too good an idea, too powerful, a business model not to exist.
Um, I think it could have been applied more ethically in many But it will have existed in the question is, how do we rest back from that our dignity, our privacy, our sovereignty, um, and protect our Children because they are at risk?
Logan: And what do you say you've given thought to it? Is there? Is that the role?
I mean, do private markets play the principal role in that? Or I assume there's government step in and All
Marcus: Yeah. So I draw confidence from comfort from a few places. Number one. I think there's a broader recognition that there's that we have signed a Faustian bargain as a society with some of these services. You know, we thought that now we have democratized journalism. So now everybody have citizen journalists.
Why don't we don't just have to read the Wall Street Journal in the New York Times? We can read the, you know, the output of hundreds of citizens now, millions of citizens. That's not what's happened, right? We're in a tidal wave of misinformation, right? And newspapers are going out of business at, at, at extinction, mass extinction rate.
And journalism is dead as a profession, right? So that's not the bargain we thought that we were You know, a similar thing could be said of online dating. I've never used online dating, but I can tell from reading all the reports, it's not a bargain that people are happy with. right now. Uh, similarly, you know, social sharing, you know, with each other.
Uh, we thought this is fantastic. We can now maintain all this, this connectivity with a vaster web of sort has [01:24:00] not led to people feeling more socially connected. It has led to people feeling more isolated and alienated, and it has gutted out the kind of institutions that used to be meaningful to people to aggregate in person.
So all these things have turned out to be so much darker than we could have imagined. And now that's being more broadly understood. So that's the first Perversely, that's one area of optimism that is a broader mass market kind of sense that an uneasiness with it, right? I think the second, um, is that there is the possibility of privacy preserving technologies that could emerge.
And therefore, you know, none of these empires are invincible. We know that from from history. You know, tech empires that we thought absolutely impregnable. They'll build, they'll be around for eternity. Not the case. HP, IBM, a million other examples. They're not, they're not invincible, nor were, nor, nor are the current players.
Um, I, as a capitalist, I don't love the idea of government involvement. In that, I would, but I am, this is therefore I'm heartened by the fact that, uh, if they don't reinvent themselves and revitalize their value proposition, you know, they, they, they could be vulnerable to, to, you know, to competitive attack in a totally healthy way.
I don't exactly know what form that would come in, but I, but I'm hopeful for it. Right. Um, so those are some kind of sparse areas of optimism. Uh, and then I think just finally, at a social level, people have. You know, kind of reconnecting to, you know, the value of human presence, of being, you know, of intimacy, of being together, of, uh, you know, things that aren't mass produced, you know, artisanal crafts, etc.
All of that, I think, is a very healthy pushback to, you know, to this kind of monstrous trend.
Logan: The guidewire journey, um, was probably more difficult than you expected when you initially set out. But, um, there was the focus on the out, uh, the inputs to it and the journey that seemed pretty impactful to you and building a durable, uh, enduring business.
Um, as you look now at private companies. Do you think there's [01:26:00] a, do you try to avoid a childhood actor syndrome where things come easy early on and that it's lightning in a bottle? And so you actually gravitate more to the ones that have had to toil along the way? Or do you, do you find resonance in the path that you didn't happen to take?
And you're like, well, if this is coming easy, that's the same way that a lot of businesses were built into big successes.
Marcus: It's a fascinating question. Uh, I think, um, I think that a false positive signal can be just as pernicious as, uh, you know, as a negative one. Now eventually you need some kind of positive signal or you don't have a business. You're, it's game over. But I have seen businesses and I, I have the privilege of being associated with one like Checkr.
Uh, you know, exceptional business. They are, um, they are blazing a path in, you know, in background check. And this isn't intended to be a commercial. It's just an observation that ties, I think, to your question. They had one of the most extraordinary initial launches, you know, out of the gate, they just hit that head pin that we were talking about with such precision, and the entire gig economy, you know, that was in a hyper growth mode said we need a new way to handle this background check part of the onboarding process of the, you know, of the talent process, just so core to our business model, and we need to do it with a tech forward API based way.
And, and they just met that market. And they just had a magical, extraordinary blast off. Yeah. Revenue in that in those early days, and Daniel and I often talk about how that was what a miracle, but also it was very two edged because it allowed them to skip through. Let's say 1 to 5 of the early stage chapters and get to a scale almost overnight that other other businesses, other startups don't get to. And there was a certain humbling that was skipped over in that process and a certain unlearning. That then had to happen with all kinds of assumptions from that point. And even though he's a very thoughtful CEO that did not want to declare victory early, there was no way to avoid, you know, his valuation, his company's valuation blasted off.
Uh, he was, you know, a darling of everyone in the, in one of them, It was hard not to let [01:28:00] it go to his head and not to feel like maybe we have cracked the code on something. And he had, that was not the end of the journey. He had to reinvent and he has to. He has to unlearn and he has to, um, you know, adopt new disciplines that were never, that were never required, uh, as it would be normally for a company to get to multiple hundred millions of dollars in guide wires case, that humbling came so early and so hard and heavy and like we were suffocating under it almost that we almost didn't make it.
And so it became kind of just native to the company, but I don't say that we were. Like particularly gifted. It was that it was just the, the, the coincidence of factors and the market at that time.
Logan: I've heard you say something to the effect of, uh, no matter how smart the people you're communicating to are, the more of them there are, the dumber the collective gets.
As the audience gets bigger and bigger, your message needs to get simpler and simpler. And one of the things I reflect on the job of CEO is to be able to deliver a simple message over and over and over again with the same enthusiasm, like it's the
Marcus: Yes. Yes.
Logan: how do you think about, um, Actualizing that or the operating principle to take away from the consistency of a message or the broadness of a group you're communicating
Marcus: Yeah, you stated, I think, the first kind of simple heuristic to apply, which is the bigger the audience, uh, then the bigger the font point, the bigger the font on the, on the slide. If you're going to use a visual, the shorter the sentences, the simpler the inferential logic and the shorter the message it Um, and that's just a basic heuristic you should apply. And, you know, this is a rare luxury to be able to hold forth at length in topic, but The vast majority people's attention spans are short and when they get very restless in groups, uh, even if they're your employees and even if what you're saying should be the most important thing that they're hearing.
They have a very limited appetite, and so you've got to keep it short. And I struggled with that, as you can tell. Um, there was a famous moment in the company where I said, Look, I want to lay out for everyone. One of our principles is transparency and integrity. I want you to know exactly where we are. So I'm going to lay out the entire [01:30:00] company story and its history and its strategy.
From premises to conclusions in a lucid way. It was like an hour and a half talk. I was proud of it. It was like, like the best McKinsey presentation And at the end of it, uh, I was asked for a question and a guy in the back kind of like said, thumbs up, thumbs down. So are we doing well or are we not doing well?
That's what I wanted to hear. And you gave me a dissertation and I tuned out. And I was kind of hurt by that, but I said, I have something to learn here. And what I came to appreciate is CEO, your primary job in communication is clarity and repetition. You have to say the same thing over and over again.
And that may, it's not because people are dumb. It's because part of what they look for you, look to you for. Is stability. They look for you for clarity and stability. And so when you say, this is, we're here to build the next generation core platform the 3 trillion insurance industry, they want to hear you say that next time too.
They want to hear, and the time after that, and they want to say, they want to hear you say, we've made progress against that, here we are. These are the obstacles to the next chapter of that, but they want to hear that through line. And what they don't want to hear is a constant revisitation from first principles and crazy pivots and all of that is deeply unsettling to a collective.
Now as individuals, they may be more than capable of appreciating all that nuance. But as a collective, uh, it's, it's toxic. Um, so I had to get used to being repetitive and to use the same language, the same form of communication, sometimes the same corny dad jokes, you know, I had to learn to do that and it made me more effective, but it took a personal price.
Like I used to get tired of my own voice. Like I can't believe I would be almost on autoplay. I am saying the same thing. But that's the job, and um, and CEOs who can't be bothered to do that, they're like, are, I think, underperforming something that's expected of them.
Logan: you talked about early on the importance of verticals and that your core belief that the most important operating systems or software companies are going to be built around vertical specific, um, industries. Can you, can you elaborate on why you think that's the [01:32:00] case
Marcus: Yeah, so, inevitably I have to talk about the industry I know best, and insurance, like, if you think about what an, the three big things an insurance company does, very simply, is they write an insurance policy, they bill you for those policies, and then they pay a claim, Obviously massive oversimplification, but those are the three big system domains. claims and billing. Now, if you squint and you apply too simplistic a Silicon Valley rubric to it, you would say, well, what is a policy? A policy is just a legal contract. So that's like contract management, right? What is a bill? Well, bill, a lot of, lots of businesses bill. You need a billing system, And, uh, what is a claim? Well, a claim is like a case. It's like a customer issue, uh, it's a case, case management system. So, what you're really talking about is, uh, a contract management system connected to a billing system connected to a case management Uh, and that would be a grotesquely wrong.
You could not possibly apply any of the horizontal software companies offerings for each of those three domains to an insurance company. It would be your, you would be so vastly far from something that would be functionally viable that it would be, you would have no chance. All right. And that's because of a million.
You know, like nuances and particularities about the way the products are structured, the way that things are built, and, uh, you know, the workflows and calculations that happen in the claims process. And if you build something general that you could just kind of, you thought you could just configure your way into it, and believe me, there have been attempts, uh, that would, it would never work.
And now in 19, in, in, in 2001, or let's say even earlier, let's say in 1990, when some of the systems were being built that Guidewire replaced, Um, that would not be a bad idea, or it would be a reasonable idea, and, uh, that's just because no one had built those specialized solutions yet. that domain is now, has now matured to a vastly greater So here we are in 2024, the, the newest offerings I think will become the future is vertical. The future of software is vertical, I believe. They will become ever more [01:34:00] specific. And that applies to even the most exciting new categories, like AI, um, that they will have to be kind of precision built to slot into very sophisticated, very industry specific kind of use cases.
And the hard strategic decisions will be, well, how, what's a vertical? So, for example, you could say insurance. Well, there's a vast difference between insurance and life insurance, property and casualty insurance and life insurance. There are two different continents on the globe. But even within PNC, the difference between a GEICO or Progressive that sells direct to consumer personal auto insurance, and let's say an ARCH or an AIG that sells highly sophisticated, syndicated, specialty commercial insurance, Night and day, almost two different kinds of industries.
So figuring out the right boundaries of what, what is our, who do we really serve? This market definition question is ever more important. It's not simple enough to say, well, I'm going to build something vertically specific, therefore for insurance. That's level zero of an inquiry that will take you multiple other steps before you've actually defined a coherent market.
Logan: do you think about not over extrapolating your experience at guidewire and your entrepreneurial journey form fitting it onto an individual situation? Maybe you're working with an entrepreneur or something. What's the balance between, you know, drawing on your experience, but not force forcing it upon the lessons to be learned.
Marcus: Yeah. I try to approach these discussions with great humility, uh, because I recognize I, you know, I had an end of one in my own, as an entrepreneur. And, uh, there, there are many, um, you know, the, the, the world has changed in some very, very, very important respects that the capital environment is completely different.
So the comportment that I would have advised, uh, an entrepreneur to take with respect to, you know, the venture world in 2005 would look unrecognizable today, right? Uh, and many other respects. So I try to focus on the universals. And I think there are things that are, that are, will be just as true in 2050 as they are today.
Right now, there's a set of [01:36:00] universal questions that have to be answered for any young company among them. For example, what is the definition of the strategy? But also, what is the right moment that a CEO should transition from founder sales to professionalized sales? When is the moment that you decide that a person that has to You know, an early employee or a co founder that's that's done something really vital.
So for, uh, you know, uh, for the company, but how do you judge and communicate whether they're the right one for the next, you know, the next leg of the journey, how do you negotiate with customers that have vastly more market power than you do and get, and get, and get Extract any kind of economic value.
These are universal questions. And it's never that I know the right answer to those, but I know the, I know the questions. And I feel like many times my role is just to frame the question. And, and then when asked to say, well, here are the considerations that might go But I do try to approach it with humility because one of the things I profoundly resented on my own journey was having patterns imposed on me.
And some of those patterns were just wrong. You know, they said, if you want to grow an enterprise software company, well, you have to hire a lot of sales reps. And that was probably true for Oracle ERP, I mean, you know, for Oracle SAP, Bond, Siebel, et cetera. They were completely, that would have been terrible anti pattern advice for my company.
Because we would be pushing on a string. And, um, I'm mindful of, of how, how much bad guidance. And how much of not how much obnoxious, uh, static you can create for founders by trying to overfit them you know, one paradigm of success.
Logan: Organizations often really struggle to be rational. And when building Guidewire, your team, I believe, aimed to make as many decisions as you possibly could on objective facts, over logic, I mean, sorry, over gut instinct. How, uh, I guess, how did you actually go about doing this? Was there any mechanics by which you, you were able to, uh, turn it into a process?
Uh, and then how does that translate to your VC [01:38:00] experience?
Marcus: I wish I had some kind of Ray Dalio system that we kind of, that we applied to this and that there was nothing of that sort. And, you know, over the last 20 years, we've been all humbled as a species, you know, as our cognitive biases have been explored and documented a thousand times over. You know, recency bias and frequency bias and all kinds of, you know, all these kinds of ways in which we make bad decisions.
And I wouldn't say that we, we crack the code at all on those. The one thing we did, however, was when decisions were made, or when everything was communicated, there was always a forum when people, any person, regardless of level or rank, could say, I'd like that, I'd like the explanation for that, I'd like the reasoning behind that process.
You know, which is essentially saying, spell out the premises, what are the priors and why this, why this plan of action. And I want to have implicitly some period of time, some window in which we can talk about the counterfactuals, about like, about the alternative paths. And here again is the power of agenda, because as CEO, I would afford some time for that.
In part, because sometimes it actually yielded the right answer, and also to show we actually take this seriously. We take, no one is above, no one is above the, the, the rule of reason. We have to be able to explain it. And if I am, if I'm incapable of doing that, then I'm embarrassed. Even as the CEO or founder of the company, even the one who knows this company and our market the best, if I cannot give you a cogent explanation, then I'm embarrassed.
And if I do, and the facts change, then I have to be accountable to the, said, you know, for these particular reasons. So, there was a classic moment in the company's history when we said, hey, we should build a self insured system. So some companies don't use, they don't, they don't insure their risks. They, they take the risk themselves and they have their kind of own mini insurance company within themselves.
And so we, Hey, we can now serve to self insured customers. And these are not insured. These are not insurance customers. These are companies like Safeway or, you know, Whole Foods. self insure. And why should we do it? Because it expands our tab and obviously, right, [01:40:00] uh, more customers that we get to sell to.
There was a set of premises that went into that conclusion and those premises turned out to be false. Thanks. And some companies would just, I think we were more resilient than most in recognizing, wait, the priors that led to this decision actually no longer hold. It's not just that bad things have happened.
It's that we were operating under a false theory. Not because anyone did anything wrong, you're just operating under a false theory. And then to acknowledge that to the whole company in a way that was, was very lucid. So I think we did that a little better than the average company, certainly from what I've observed.
Um, but we had no magic bullet to solve all the other dumb things do when they make
Logan: know, that's really really easy.
Marcus: Yeah, so one, one part of the venture world that I love, and, and I wish I had even more of, is that kind of debate, that kind of discussion with, with, um, you know, with my colleagues. And I don't, by that I don't mean the other partnership, I mean like every member of the team who has, you get to have this really enjoyable, lots of counterfactuals, lots of comparables, um, and you're trying to underwrite a decision for which there's all kinds of unknowns, and that discussion, to do it on, on, on facts, and even to say we need more facts, It's very pleasurable.
Like, I don't know if every founder or former operator would feel that way, but it, for me, I find it deeply satisfying and I like doing that. Does it lead to better decisions or not? I, I don't know. Every VC firm thinks, yes, they have a special process. They reason through these things better than others.
But I am proud of the fact that I work for a firm where it is generally not okay just to say, I like it, I don't like it. Or, you know. This looks like that, therefore, therefore this, you know, that you have to spell out your reasoning with
Logan: We've talked a lot about the product market, uh, areas around guidewire as well as, um, the balance sheet and hitting the head of the pin at exactly the right point for demand.
Um, it's a lot of points [01:42:00] that are market centric, uh, in a lot of the areas that, that we've talked about. What about the founder? Aspect of it rare have I sat with a founder ceo that has built a company is a success and we haven't wax poetic about the intrinsic capabilities of the founder and I know that's what appealed to you and getting into this this job specifically as you think about the best characteristics of the through line of.
Founders that you enjoy working with or founders that you emulate. What, um, are, are there, are there certain characteristics that you
Marcus: Yeah, indeed. So we've spent a lot of time, as you said, on Roman numeral one in the evaluation, which is the strategic coherence. But Roman numeral two, right behind it, is underwriting the founder. Uh, and, uh, I have a, I have kind of a great man or great woman, his theory of history, which is that certainly for companies that they really are driven by, by the founders in a, in a profound way.
Um, and, uh, it's not, they're not, it's not smart people who happen to have the idea that they have qualitatively different relationship and kind of, Agent power over the company's success that, uh, I used to feel was underappreciated by investors. But now these days is much more acknowledged. What do I look for?
Um, so one is derivative of roman numeral one coherence in explication. Can they speak, um, without pretension, without promotion in a lucid way? And do they that can flex to high level of cross examination. Um, right. Or are they brittle? Is their understanding of things brittle? Do they result, you know, do they fall apart and we don't come to like a word salad of, of truisms and platitudes?
Are they able to keep complex argument in their mind? If you ask them a three part question, are they able to answer one, then two, then three? Um, and with evidence, do they acknowledge when they don't know something, So that's, that's one category of evaluating or underwriting the founder. But the second is entirely character.
It's character. And what do I mean by that? I don't really mean moral [01:44:00] character, though, of course, that's important. Uh, it's hard to assess from the outside, but a character of, um, of an appetite, of a, of a kind of a whole, the way that I sometimes describe it, and again, not my phrase, it's a hole that can't be filled, have a hole that cannot be filled within them.
I have a hole inside me that can't Uh, even though I am married to the love of my life and my life is great, I have a hunger to do something more. That's why I continue to work now. And it's a trait that I've seen in many founders. They just have to do it because they, They need to feel that they are pushing against the world and they have something, they have something urgent to prove.
Uh, and, um, and they are again the phrase, they're insecure overachievers. They have a, they have an insecurity within them that will not be, cannot be fully satisfied. That's not true of every founder. There are megalomaniacs. Uh, there are people who are supremely confident no matter what. But those are not the ones that I'm personally drawn to.
Uh, the ones that I am are ones that are kind of perpetually insecure. That what they have built, they really understand the thing that they think they do. They have a conviction, but they are, if something threatens that conviction, they want to understand it and they want to shore up that conviction or adapt their conviction.
Right? so how do you judge this quality? Some of it comes out in conversation, but some of it comes out in life history. You know, someone who's had a life that has some struggle to it. Um, I think athletics can be a positive indicator. Obviously not, not purely just by itself. Um, but some track record of being humbled and trying and trying over and over again and also, um, being insecure a little bit in the right way to a healthy degree.
I know that seems peculiar, but I, I think that those qualities are the best to track between, um, you know, not getting over exuberant and also not getting demoralized. And yeah, and walking that line is, is where, you know, you have a shot of greatness.
Logan: Are there industries emerging opportunities that, um, as people are [01:46:00] listening to this founders or, um, executives, are there things that are uniquely appealing to you? It sounds like vertical markets is a, is a big
Marcus: I mean, I think software is infinite. That's not a novel observation. Um, more so than ever. Uh, every, every single facet of, Of human life can be improved. Um, uh, with better software, with better information, better decisions, uh, with, uh, with more agentic power over what we do. So there will never be a shortage of opportunities.
Never. Uh, as least as long as our economic system, uh, state and political systems stay viable.
Logan: another five years or so.
Marcus: yes, that's no one knows the future, but I, that I have conviction over. Um, yeah. And so, uh, however, I think that, that, uh, as I said, that industries themselves have gotten vastly more specific and more and more sophisticated.
Again, if you look at insurance, you look at what the way that insurance products are defined now versus 20 years ago, 25 years ago around guidewires advent, the products are much more complicated. The nature of the pricing is so much more sophisticated than it's ever been. Um, the kind of data that is incorporated in order to make, you know, uh, underwriting and pricing decisions is vastly more sophisticated, more comprehensive.
So, therefore, to build an application, something that's actually useful, uh, and have it be generically useful for, uh, a vast array of industries, to me seems more and more improbable. More and more. And that'll apply even to categories that we kind of think of as horizontal, like CRM. let me just cast one prediction out there.
CRM is going to become It just has to be. There was a time when just getting these ten tables together, Uh, and putting it together in a cloud based, uh, uh, environment as, as Salesforce figured out to do first, uh, was enough to win the market. It will not be in the future, because what is it, what is a prospect, what is an opportunity, what is a contact, and what do you need to know about them for it to be useful, are going to become so, are already become so much more, so much richer and more demanding, uh, than they were before.
And therefore, what is a minimally [01:48:00] acceptable CRM system, We'll mean something very different over time and become much more specific to an industry or a sub industry. Um, when Guidewire was founded, it was a novel and kind of narrow idea to say, we're going to focus on the property and casualty insurance industry.
Now I talk to insure tech entrepreneurs all the time and they say, we're going to handle the seeded reinsurance, um, you know, bidding process for complex commercial specialty insurers. You know, that, that participate in the excess and surplus market. Like that's the business concept, you know, it's something so much more particular on the one hand, I worry as an investor, well, is there going to be a big enough market on the other side of that?
On the other hand, I admire that it is. It's, it's again, hitting that head pin of something that really needs to be done where the market is today. And again, if you succeed at one thing, that compounds, you are in the right to succeed at the next grow, grow the perimeter of your aspiration.
Logan: This was fun, Marcus. Thanks for, thanks for doing this. Uh, you, um, your, your PhD in philosophy shows through in these discussions and you have, uh, very interesting thought, um, at, at a, uh, at an operational level and also more of a meta level across all these different things. So this
Marcus: Thank you. That's high flattery. Um, sometimes I worry about getting too professorial and that was a concern for me on the, uh, uh, you know, on the CEO journey. But, uh, the last, last bit of advice that I internalized for myself and, and gave to others is you must, You must speak to your own strengths and your own nature.
And sometimes you feel as a founder of a company that you have to represent yourself as something else. It always fails. People see through it. People hate inauthenticity. And so I said, I'm this quirky, maybe over cerebral, over intellectual. Um, and I'm either going to succeed and find a way to be a good CEO and founder doing that, or I'm not, I'm going to, I'm going to fail, but I know I will fail trying to represent myself as, you know, whatever, the second coming of Steve Jobs or something like that.
I, I don't resemble that in any
Logan: Yeah. Well, this was fun. Thanks for doing it. [01:50:00] Thank you for joining this episode of the Logan Bartlett show with former CEO and co founder of Guidewire Marcus Rue. If you enjoyed this discussion, we'd really appreciate it if you shared with anyone else that you think might find it interesting as well as subscribed on whatever platform that you're listening to on.
We will see you next week with another great guest on the Logan Bartlett show. Have a great weekend, everyone.