Doping for the Internet
The Linz-based company Dynatrace builds software that detects and fixes errors in IT systems. Despite several exits and an IPO in New York, founder Bernd Greifeneder is steering the future of this “unicorn” from Linz as CTO.
This story was originally written by Stefan Tesch for Gewinn.at.
He likes to jet across Lake Attersee in his sailboat. “From 20 knots, it gets pretty narrow,” Bernd Greifeneder jokes about his territory, which is 1.3 kilometers wide at its narrowest point. His sporty driving style on water also causes that: “You constantly get wet and capsize.” But anyone who now thinks that parallels can be drawn with Greifeneder’s career is mistaken. With the start-up he founded in 2005, he has anything but capsized. Spoiler alert: just under 15 billion U.S. dollars in market value today on the New York Stock Exchange. And thus far above the magic threshold of one billion, above which one can call oneself a unicorn.
In order to understand, as a non-computer scientist, what Dynatrace does, we travel back to its founding history. Greifeneder studied Computer Science at the JKU Linz and was shocked during the dotcom boom “that almost every online store collapsed with ten or more simultaneous users”. So, without hesitation, he invented a program that scrutinizes every user interaction — from the click on the website to the heart of the server. Dynamic Tracing (from which the company name is derived) was born. In the past, it showed IT staff where the problem lay, but now it also automatically irons it out. Thanks to artificial intelligence.
No corporate IT without Dynatrace
And it’s no longer the small online stores that use Greifeneder’s solution, but the big fish. Starting with the financial industry with Mastercard and Bank of America, to Telekom with AT&T and Vodafone, but also retail, Nestlé, Starbucks as well as Airbus and Exxon Mobil. “Starting from a hundred servers, customers no longer have an overview which systems are connected and how”, says Greifeneder, summing up why in times of cloud computing hardly anyone can get past their “doping.”
One prominent example is SAP. The German IT giant has installed Dynatrace on more than 100,000 (!) of its servers, on which it handles e-commerce solutions. “Whereas in the past we were only involved in problem diagnosis, today we support companies in their digital transformation,” says Greifeneder. “We stand for automation and want to move customers away from wasting IT or software specialists on babysitting computers.” In other words, Dynatrace is up and running for major customers within 24 hours, with no further human intervention needed.
At least at the customer’s site. After all, around 1,000 employees are responsible for the further development of the software product at Dynatrace. Managed by CTO Greifeneder from Linz. Strategically managed by CEO John Van Siclen in Boston.
First exit after four years
Just one year after the company was founded, the first investor joined Dynatrace: the US venture capital fund Bain Capital Ventures. Three years later, Bay Partners from California joined in and both held two-thirds of the company after the second round of financing with around 13 million US dollars. Only two years later, in 2011, the American mainframe specialist Compuware swallowed Dynatrace for 256 million US dollars. Greifeneder’s co-founders, his wife Sok-Kheng Taing and Hubert Gerstmayr, exited at that point.
He stayed. “It’s never been about the money. It’s been about making something happen that benefits others,” Greifeneder’s response. “We humans are driven by evolution and want to spread our genes. I do it in an intellectual way,” he says.
He demonstrated energy and enthusiasm over the next few years as Dynatrace was integrated into Compuware as a separate division under Greifeneder’s command. “One of the most expensive things about scaling software is building direct sales,” he recalls, having burned through a lot of money by then — on his own dime. Compuware was a corporation with an entirely different culture than Dynatrace. The company name mutated into a product name. Despite the culture clash, sales doubled from year to year. A turbo-internationalization that a start-up otherwise could not have afforded.
Dynatrace 2.0 under Compuware
But even within Compuware, Dynatrace still had the start-up branding. Along with two other Compuware acquisitions, Greifender continued to build his original baby as virtual CEO. “I was able to redevelop the vision of Dynatrace. A second version of Dynatrace was created,” he says. A large part of “his” 150 software developers operated strategic future research to make Dynatrace the market leader for IT monitoring for enterprise customers.
Austria was always the center of the product vision and that’s where the Dynatrace core team continued to write code. Then came the shock moment in 2014. U.S. private equity investor Thoma Bravo acquired Compuware for $2.5 billion and found Greifeneder’s startup-like ways to be a stupid idea. “The investor specializes in buying companies that have a good product but ineffective leadership,” Greifeneder analyzes. Thoma Bravo wasn’t used to waiting out a period of time between investment and output like a typical VC.
But the IT monitoring business, i.e., Dynatrace, was the reason for the acquisition. Thoma Bravo, who among other things also holds a piece of pie in the McAfee antivirus group, wanted to use it to fish in this pond of IT as well, and took the “rest” of Compuware (Mainframe Environment) as an accessory. So Greifeneder was at center stage and even got the new owner to let Dynatrace reincorporate as a company. “Via this exit, we went back to the original agility, despite having 1,000 employees.”
Talent as CTO
Greifeneder, by the way, went through all the stages staying in his CTO position. CEO was and still is American John Van Siclen, who he brought into that position in 2008 (while Dynatrace was still majority-owned by its founders). “We have a brilliant partnership. We trust each other blindly and across the pond,” Greifeneder says. That’s because Van Siclen “sits” at the Dynatrace headquarters in Boston.
“In the early years of the company’s existence,” Greifeneder recalls, “I did everything tactically and strategically across the pond as CEO.” From hiring to product development to sales. A lot of that went by gut feeling. “When we had 70 employees, I realized that you have to understand your talent.” In other words, the management and the expansion into the U.S., was then in better hands with Van Sinclen. Greifeneder admits not having had the experience at the time to turn such a start-up into a large construct. Side note: “But my wife had outshone the best salespeople by then with her sales power.”
When Greifeneder’s construct “really took off” under the reign of Thoma Bravo, the next milestone in the company’s history soon followed: the 2019 IPO in New York, which brought in around half a billion US dollars. And that’s on annual sales of $546 million in 2020, a good quarter more than the previous year. “We can always offer the customer more, because our product is constantly being developed further and can do more,” Greifeneder, who himself holds a few thousand shares in the company, explains. For instance, he recently made the move into the application security market (security of applications), which was an obvious next step due to their expertise in cloud technology.
An average customer pays €100,000 to €1 million annually to Dynatrace on a subscription model. “We still have much larger customers with us, but hardly any smaller ones,” Greifeneder said, illustrating the enterprise focus. Of the 2,500 customers around the globe, 40 percent are in the U.S., 30 in Europe and the “rest” in Asia and South America. Because of the “Great Firewall,” China is not very well represented in the customer portfolio.
The situation is different in the Western world. There is a symbiotic relationship with the cloud oligopolies Amazon (AWS), Microsoft (Azure) and Google. After all, their goal is to get companies to move their IT systems to their clouds. And since this migration brings a hefty portion of complexity (and thus error-proneness) in one fell swoop, the Dynatrace monitoring solution with self-healing fits perfectly.
Not quite fitting anymore are Greifeneder’s programming skills, as he says: “My team doesn’t allow me to do it anymore,” he jokes. Therefore, he codes small microcontrollers at home with his children. “That’s when I realize that I still really enjoy it.”
(Translated into English by Giulia Di Pietro)