Diane Greene at Startup School 2013

Early Background and Vision

• Founded VMware in 1998 with a vision to make virtualization ubiquitous by the year 2000 (missed target by six years but ultimately achieved ubiquity).
• Defined virtualization as a software layer between hardware and OS that allows multiple operating systems to run on single or distributed computers to increase efficiency.
• Launched with a founding team including the speaker's husband (Stanford CS Professor), two graduate students, and employee number one (later founder of a company acquired by Google).
• Initial office was located over "The Cheese Board" in Palo Alto at a rate of $1.75/sq ft.

Funding Strategy and Capitalization

• Initially self-funded by immediate family (excluding friends) until a functional proof-of-concept was achieved.
• Secured early angel investment from Andy Bechtolsheim, John Hennessy, and David Sheridan (technically sophisticated computer scientists).
• In 2000 (height of the bubble), secured a lead round from Michael Dell rather than VC firms to maintain valuation stability.
• Deliberately rejected higher VC valuations in anticipation of the market correction to avoid a "down round" risk.
• Closed the Dell round in April 2000 immediately after the VC market crashed; Michael Dell later commented on CNET that he invested to help Linux despite expecting no profit (comment proved incorrect).
• Revenue reached a $2 billion run rate with 54% year-over-year growth by the speaker's departure in 2008.
• By 2008, the company employed approximately 6,000 people globally.

Product Strategy and Go-to-Market

• Established a strict "no dependency" rule: the product could not require concessions from Intel or Microsoft to ensure vendor neutrality.
• Chose a desktop-first milestone: enabling Windows to run on Linux (and vice versa) to leverage existing Windows device drivers and avoid the immediate server market.
• Adopted a "total trust" pricing model: free 30-day trials with commercial use charged at $299 and hobbyist use at $99.
• Launched initially as a Linux tool to access the developer community, leading to acquisition interest from three Linux firms.
• Generated press coverage via word-of-mouth and conference demos (specifically "Demo" and Slashdot) rather than paid marketing.
• Experienced a launch day technical bottleneck where high demand caused a bandwidth outage; the site was temporarily hosted by a Cornell student.
• Filed patents from day one for IP protection against giants like Intel and Microsoft, though the speaker noted they were rarely effective in litigation.
• Received a patent lawsuit from a company that copied VMware; the lawsuit succeeded in slowing Microsoft's adoption of the competitor's inferior code.

Board Formation and Enterprise Pivot

• Secured Larry Sonsini (Wilson Sonsini) as a board member by offering to move the company to his law firm; he joined after a brief discussion regarding the challenges of competing with Intel and Microsoft.
• Pivot decision: Unable to build an enterprise sales force, partnered with hardware vendors (specifically IBM and Dell) to resell the product.
• Overcame initial rejection by hardware marketing teams and industry analysts (including a misaligned Forrester meeting).
• Secured a critical partnership with an IBM engineer (Fellow) who recognized the value of the product for x86 server sales.
• Created an artificial "VMware Preferred Hardware Vendor" program with a deadline to compel vendor adoption.
• Survived a near-fatal legal hurdle: IBM halted a distribution deal upon discovering GPL-licensed Linux code in VMware's distribution due to fears of open-source license "pollution."
• Resolved the legal block by restructuring the deal so IBM resellers sold the product, allowing the enterprise market to launch successfully.

Market Reception and Future Outlook

• Product launched successfully via hardware reseller conferences, leading to a surge in the server market.
• Received significant customer validation, including a Wall Street Journal article praising "freedom of choice" and user testimonials calling the product superior to Microsoft stability.
• Speaker confirmed she is currently founding a third startup, noting that each venture presents distinct challenges.
• Emphasized that success relies on "lucky breaks" and positioning oneself to capitalize on them rather than relying on luck alone.
• Concluded that the core motivation of the enterprise market is delivering useful software that improves customer lives.