Carl Eschenbach has been at the center of some of the most consequential growth stories in enterprise tech. He joined VMware when it had 200 people and left 14 years later when it had 20,000. He scaled the business from $30M in revenue in his first year to $7B. He went on to become CEO of Workday, one of the five largest public software companies in the world, where he pushed the company through the early innings of an AI-driven transformation. Today, he's a partner at Sequoia Capital, with portfolio companies including Gong, Snowflake, Zoom, and UiPath.

His perspective is shaped by having lived both sides of the modern innovators dilemma: as the operator of a category leader trying to stay ahead, and as an investor betting on upstarts.

Carl recently sat down with me at Serval’s headquarters to discuss his perspective on timeless principles for scaling companies, the role of trust as a competitive moat, and what it takes to build a lasting company in the AI era. 

Jake Stauch:

You scaled VMware from $0 to $7 billion. Looking back at that journey, what fundamental principles for building a lasting company remain the same in today’s environment?

Carl Eschenbach:

First, there is no substitute for great people. Great people build great companies. So focusing on the people is critically important. I know there's this narrative that we're going to need less people, maybe that's true. But at the end of the day, leadership is absolutely critical to scaling any company. Leadership then brings in the lineage of people underneath him or her to take it to the next level. 

Number two: don't forget about the importance of culture and values. It's what helps attract people, but more importantly, it helps retain the people once they get in. 

Number three: speed, speed, speed. It's never changed, but it's never been more important than it is in the AI era that we're going through. 

Number four: The fastest way to scale is to keep things simple. In every aspect of life and business, simplicity scales; complexity doesn't. As companies grow rapidly and add people and layers of hierarchy, what's going to slow you down? I promise you, it won't be the competition, it won't be what’s outside the building. It will be what happens inside the building. So how do you keep things simple? And that’s in tight correlation with how do you drive with speed? 

And some things have changed, like the technology; the data behind running a business is greater than ever, and automation has completely changed everything. And I do think certain roles may be impacted by the use of technology like AI.

Jake Stauch:

It's always been the case that enterprise tech companies have a brief moment when they're a star company and see success in the market. Then, very quickly, they become a legacy company and get disrupted from behind. Today, I feel like the cycle is accelerating. The companies that are going to have their moment will have a smaller one than ever. How do we defend from behind? Because I think the biggest threat to us isn't going to be the legacy enterprise tech companies; it's going to be the upstarts. And they're probably not going to be 20 years down the line, I think they're going to be two years down the line.

Carl Eschenbach: 

I always start with trust. Trust inside the building amongst yourself, your team, your partners, and your investors. And that needs to parlay into trust with your customers. When customers trust you, they'll stay with you. Don't underestimate the importance of building deep, meaningful professional and personal relationships with your customers. You’re going to displace some of your competitors because they've lost the trust of their customers by raising prices and changing the way they do things. Building trust with your customer and the relationship that you establish with them is a moat. It's a deep moat if you get it right. Spend time with your customers, over-rotate on customer support and customer satisfaction, and always do right by them. Logos are another moat. Momentum is a moat. Speed becomes a moat as well.

Jake Stauch:

Speed is a huge advantage that we have right now. We have about 80 people. We can move much, much faster than our large, legacy competitors. But obviously, we want to grow. How do we stay fast as we scale? 

Carl Eschenbach: 

Don't let complexity creep in. I hope everyone doesn’t take this the wrong way: If you're not included in a decision, sometimes it's okay. If you trust your people, let them run. I'd always rather have to pull the reins back on the horse than have to spur it to get it to go.

And it's okay to make mistakes. If you're not making mistakes, you're not pushing hard enough. Just keep things as simple as possible so you don't slow yourself down. And don't let hierarchy creep in and slow the business process. Don't let sand get in the gears.

You do need compliance and controls. That's critically important. It makes you a better company because you're into the details, but that doesn't mean everyone has to be involved.

Jake Stauch:

We’ve seen many legacy SaaS providers acquire smaller AI companies. Are you bullish on AI acquisitions transforming the legacy SaaS providers?

Carl Eschenbach:

I’m probably still biased, but those companies are absolutely at risk. But I also know they're not going away. Will they get the exciting multiples and the returns that they're accustomed to? Probably not. You're seeing that in the market. I think people are betting on newer, AI-native companies like Serval to disrupt those markets and, respectfully, drive down the price point for customers. For what they are paying, customers don't believe they're extracting the same level of value they once did from all of these incumbent technology partners, so they're looking to augment that by going with new technology partners to drive costs down.

Jake Stauch:

What other observations have you made as you stepped outside of the operator role and back into a full-time investing role at Sequoia?

Carl Eschenbach:

There’s a lot of investments in AI. It’s happening at a pace I don't think we've ever seen in venture capital, other than maybe 2020-2021, when it accelerated post-COVID.

While everyone is still funding pure AI software companies, there's a lot of investment going into the infrastructure. And when I say infrastructure, it's not just software; it's hardware as well. You have to build out the infrastructure to scale this thing over time. 

It's faster and easier to start a company than ever before. That's why you have to go back and focus on, ‘what is your moat?’ I think revenue is ramping quickly, and I would say it's even accelerated just in the last six months since Claude Code has come out; everything's changed. 

Jake Stauch:

You have seen a few booms and busts. Starting with the .com boom, you saw the post-COVID boom and bust. How is AI different? How is it the same?

Carl Eschenbach:

When I was in it, it felt real. But in comparison, this seems way more real now because I fundamentally believe AI is going to transform the world. It's going to transform society, it's going to transform business, and it's going to transform us as people. We can't be afraid of it. We’ve got to lean into it. And I truly believe AI is going to amplify human potential. It's not going to replace it. 

I think people believe that they're going to compete against AI for jobs. I actually think people are competing against their competitors and their peers who are using and leveraging AI. That's the competition.

Is it a frothy market now? Yeah. Could it fizzle? Potentially. But out of every one of these big hype cycles that plateau, major companies always emerge. You look at every big tech company in the world. They started it during one of these cycles. And I think the same thing is going to happen again here. And I do think, not because I'm sitting here, people like you who are going after massive TAMs with massive incumbents, who are stuck in the middle of innovators' dilemma, to drive $15 billion of revenue every year: these are the type of companies that are going to emerge with real moats and real value for their customers, and they'll be around forever. But I'd be disingenuous if I didn't say there's a lot that won't make it.

Jake Stauch:

I think it's certainly a hot market. But also, the tangible benefits have never been clearer in any of these hype cycles.

Carl Eschenbach:

Yeah, exactly. The one thing I would always ask is how does Serval, or any company, turn up in a customer's financials or their PNL? Can they point and say, " We saved X number of dollars, or we're using this technology, and we can bring products to market faster. We're accelerating growth because of this.” If you don't have a line item in a company's PNL or their financials because of your technology, either growth or saving them money, I'd revisit your value proposition.

Jake Stauch:

Carl, thank you so much for sharing your valuable insights.

Note: This conversation has been condensed and edited for brevity.