NTNX - Only the Paranoid Survive

From Dheeraj’s new letter to shareholders :


"Public markets are rightfully paranoid about the future of small-to-mid cap companies that compete with large incumbents. Through this letter, I want to assure our shareholders that the cloud is in its very early journey, just like the vertically integrated PC industry was in the late 80s. The technology industry has inevitably shattered big things into smaller things that also have shorter lifespans. From Mainframes to Unix servers to Intel x86 servers to virtual machines to containers, and from desktops to laptops to smartphones, we’ve constantly miniaturized technology. The public cloud players are building the new Mainframe, i.e., gigantic data centers with large capex investments and multi-year refresh cycles. Data sovereignty (“Laws of the Land”) and data gravity (“Laws of Physics”) will force clouds to be smaller and dispersed.

Xi, like Android and Windows, will be asset-lite, about software, and built with suppliers of smaller data centers. In this decade, we are betting very differently on the architecture of cloud than the hyper-scalers. This suits us well because of our private cloud lineage and software distribution. It also suits us because we believe in all things distributed. It doesn’t hurt that history is on our side.

Finally, I want you to know that velocity is our only friend, and we’ve balanced it well with customer experience. We’re a rare company that has navigated the shifting sands of IT better — and faster — than most other IT players. We simply happen to have a unique trait of bringing it all together with design.

Velocity makes us survive. It also makes us thrive." :



I’m a big fan of Nutanix and it’s Founder-CEO.

I found this part of the article particularly valuable. I know many feel the business is confusing. The tech aspect certainly is. But here’s a clear-cut approach laid out in that letter. I also love how he called Nutanix good, not great (yet).

Also, Pandey loves the book “Only the Paranoid Survive” in case anyone is looking for book recs.

“Good vs. Great Companies:

Growth, Delivery, and Leverage

In less than a decade, we’ve become one of the 45 software companies in the entire history of IT to achieve a billion dollars in annual revenue. And yet, we are a good company, not a great company. Our path to greatness will depend on defining (a) sustainable growth, (b) frictionless delivery, and (c) leverage of core products to build new products.

On sustainable growth: We’ve talked about the Rule of 40 being our true compass to grow fast, but not at all costs. Without dipping into our balance sheet, we’ve committed to become one of only 15 software companies in the history of IT to achieve $3 billion in annual business. If a downturn were to hit us, and our growth were to slow down, we are confident that we will produce meaningful free cash flow, based on the strength of our existing sales force and customers.

On frictionless delivery: We first delivered our core product as an appliance, then through our OEMs as pure software, and now as pure software-as-a-subscription on-premises. Like we committed to becoming a pure software company in fiscal 2018, we are committed in fiscal 2019 to delivering a large percentage of our on-premises business as subscription and recurring revenue.

On leverage: We’re confident that our core HCI product should take us to our stated goal of 2021. That clarity notwithstanding, we will serve our shareholders more meaningfully over the longer term, by keeping our eye on technology tuck-in’s and organic products that leverage the core and provide a public cloud-like experience on-prem. Some of these have the potential to be billion dollar businesses on their own in the next 4-5 years.

Our go-to-market is, therefore, progressively built around Nutanix Core, Nutanix Essentials, and Nutanix Enterprise, depending on the maturity of the customer and the depth of our relationship with them. Every engagement starts with the Core, then evolves to Essentials, and eventually graduates to the Enterprise.


free capital and Austin,

I read his letter, but can either of you put what he said into English?

For example:

Finally, I want you to know that velocity is our only friend, and we’ve balanced it well with customer experience.

We’re a rare company that has navigated the shifting sands of IT better — and faster — than most other IT players. We simply happen to have a unique trait of bringing it all together with design.

Velocity makes us survive. It also makes us thrive.

What does velocity is our only friend mean?
What does we’ve balanced it well with customer experience mean? (It would be helpful if he had told us what he means by velocity! He never defined “velocity”. He just threw it in there.)
What does velocity makes us survive mean?
What does bringing it all together with design mean?

If one of you could summarize what he actually said in his letter, not in his words, but in your own, I’d really appreciate it.



we’ve committed to become one of only 15 software companies in the history of IT to achieve $3 billion in annual business. If a downturn were to hit us, and our growth were to slow down, we are confident that we will produce meaningful free cash flow

Not entirely comforting. He didn’t even include “by 2021” this time.


What does velocity is our only friend mean?

I think he refers to the constant need for agility, and rapid innovation

What does we’ve balanced it well with customer experience mean? (It would be helpful if he had told us what he means by velocity! He never defined “velocity”. He just threw it in there.)

Despite delivering on a constantly evolving promise of HCI etc, they have managed to delight their customer base while maintaining the pace of innovation

What does velocity makes us survive mean?

When the market you are delivering product for is evolving quickly, you need a particular type of mindset to keep focused on what is actually important, and to do it better and quicker than your competition

What does bringing it all together with design mean?

They develop software that is not only functional at the backend (does what it is supposed to do), but actually attractive to use due to a thoughtful frontend (well designed software)

All imho


apologies for the formatting errors in my post.

the speed at which they innovate is what I read that as…but I could be wrong.



Those guys can correct me if I am wrong but here is what I believe he meant. We define velocity in IT as the speed of change. We know by know with cloud the velocity/speed of change is very high and he is counting on that. Usually most top management considers it hard to keep up with change but it seems he favors it. I think part of the reason being he considers it to become local cloud eventually and since he is in that space the faster the change the better it is for Nutanix to capitalize.

Of course they will have to continue to adapt as well. Their hardware company to majority software company transition in terms of revenue was addressed in 2018. They have the sight set to become SaaS company by 2021. By design, I believe he means the ease at which they were able to transition out from Hardware to Software and that he considers in his favor to transition further into SaaS play.

Hope that answers your questions. Feel free to correct me anyone if I misstated anything that you do not agree with.

  • Ruhaan


There is a whole paragraph about their 2021 goal.

Our 2021 Goal: At Least $3 Billion in Software and Support Billings
Customers love Nutanix because it is an underdog that has strong character. There is a reason why our repeat business with existing customers is stronger than ever, as is our sales productivity. Given the strength in both supply (sales and robust products) and demand (repeat business), we laid down a realistic goal of achieving $3 billion in billings by FY21 (Jul ’21)…



It is like the Tour de France. The harder the course is, the easier it is for the strongest rider. Sounds counter-intuitive but is absolutely true. The strongest rider will relatively speaking show greater and greater advantages relative to competitors as the difficulty of the course increases, and at the same time need to put out relatively less effort than his competitors to achieve that victory.

Nutanix is up against huge corporate behemoths who prefer things never change, if things do change that they change slowly, and certainly prefer that no one create any change that may cannibalize their nice steady and easy core businesses. Because of this, Nutanix feels that as the pace of change increases so will Nutanix’s leadership in the market because they thrive being the visionary foreseeing change, in creating the change, and in adapting to the change.

The faster the change, then relatively speaking, the better it is for Nutanix vs. its very large and slower moving, legacy defending corporate behemoth competitors who cannot keep up and who will always be the followers.

This is also true of so many disruptive companies. If things slow down that gives the larger competitors time to use their advantages of scale, distribution, money etc and adapt to the new disruptive paradigm. Decreasing innovation helps the large incumbents. This is why a smaller disruptive company must continually press forward innovation and move at fast pace. It is not just Nutanix (although Nutanix specifically calls it a core competency) but with any small disruptor, speed and change are their friend, as long as they are the one’s pushing the pace and change. And like with the Tour de France, the faster the better, as the faster it goes, the relatively easier it is for the disruptor to win.




I believe that the word “Velocity” as used by the CEO here is a very specifically defined metric in the philosophy of Agile Software Development. Given his history as a software guy and what appears to be the fact that Agile Development is deeply embedded at Nutanix, he wrongly assumed everyone would know exactly what he was talking about.

But, it is only a capstone part of what the Agile Philosophy is.

Velocity, from Wikipedia: “Velocity is a metric for work done, which is often used in agile software development. Measuring velocity is sometimes called velocity tracking. The velocity metric is used for planning sprints and measuring team performance.” https://en.wikipedia.org/wiki/Velocity_(software_development…

Velocity = "The rate at which an Agile completes work, used not to measure progress per se, but to accurately estimate the team’s capacity for future iterations and guide the team and product owner in planning upcoming iterations. http://agiledictionary.com/213/velocity/

I’m certain that Smorgasbord1, SteppenWulf, Captainccs and others can better explain why Velocity is so key and why the Agile Development Philosophy has dramatically changed the software world.

And Tinker is right—they are fighting some of the largest competitors in the world so this “getting work done quickly” is the only way they can win. Agile culture should help them get there.

Here’s some sources / resources to support the point:

From Nutanix https://www.nutanix.com/2018/01/26/digital-transformation-ro…

"Digital transformation (DX) has triggered a major overhaul in the way organizations think about tried-and-true business models and operationalize day-to-day processes…

…With the rise of DX and supporting technologies like IoT, data processing, and visualization, the role of software development has become increasingly important. To quickly deliver new applications and services, IT teams are transitioning to DevOps models that close the gap between development and operations…

…What exactly is DevOps? According to Wikipedia, DevOps is a clipped compound of “software development” and “information technology operations.” This combination of changes to IT culture and technology is designed to remove friction between development and operations teams to accelerate the delivery of new capabilities and services. Done correctly, it removes the strict division of responsibility and enables collaboration and automation…

…At the heart of a successful DevOps model is the Agile software development methodology, which consists of a set of principles that drive evolving product and solutions through collaboration across diverse teams…"


"Agile software development principles

The Manifesto for Agile Software Development is based on twelve principles:

  1. Customer satisfaction by early and continuous delivery of valuable software.
  2. Welcome changing requirements, even in late development.
  3. Deliver working software frequently (weeks rather than months)
  4. Close, daily cooperation between business people and developers
  5. Projects are built around motivated individuals, who should be trusted
  6. Face-to-face conversation is the best form of communication (co-location)
  7. Working software is the primary measure of progress
  8. Sustainable development, able to maintain a constant pace
  9. Continuous attention to technical excellence and good design
  10. Simplicity—the art of maximizing the amount of work not done—is essential
  11. Best architectures, requirements, and designs emerge from self-organizing teams
  12. Regularly, the team reflects on how to become more effective, and adjusts accordingly"


I would actually argue he gave more clarity and is more confident than ever that Nutanix will exceed $3B by 2021. Here’s a quote from that same article. I’m on the phone in the car (not driving) so please forgive the lack of formatting and depth.

"we laid down a realistic goal of achieving $3 billion in billings by FY21 (Jul ’21). We are confident that we can do that without buying our way through M&A into a revenue base. Core HCI is a large enough high-CAGR market for a leader like Nutanix to get there organically. All we have to do is to go after new geographies, support more workloads, and certify new server platforms to get our existing HCI customers even more productive. Our recent acquisition of Frame, and

our organic development of new data services make us increasingly confident that we can do at least $3 billion in the next 3 years."

My take: I still believe Nutanix is an incredible business with incredible management and disruptive, industry leading products.

Their operational results, NPS scores, Market Share growth, and Gartner scores all support that.

Wall Street has simply misunderstood their 2018 transition away from hardware to software (my opinion) and I believe analysts will finally catch on this year as Nutanix begins to face YoY comparisons from when they began removing significant amounts of hardware rev.


Interesting discussion. I, like Saul, would prefer to understand what the CEO is talking about or rather speak English for the less technically(IT vocabulary wise)minded. At the end of the day, its the numbers that interpret the language. However, this part below from the CEO imo was disconcerting and something I did understand in plain English…or possibly not? What does meaningful mean and why even mention a possible slowdown in growth unless you are hedging your bets?

“If a downturn were to hit us, and our growth were to slow down, we are confident that we will produce meaningful free cash flow.”


You left out the most important part of that quote. The last sentence:

“based on the strength of our existing sales force and customers.”

I think we’re over analyzing this.

This quote is part of a larger point. In order for Nutanix to move from good to great, sustainable growth is a requirement.

A downturn is going to happen at some point. That’s just reality. Instead of acting like that won’t happen, he’s set Nutanix up to be able to produce strong free cash flow with their existing customer base (growth might slow in a down turn, but the business should survive).

So they have optionality. Right now, they are pulling levers and spending more to develop new products and grow the customer base, but if/when things change, they will change too and switch to sustainability mode.

That’s how I understand it at least.

I think Pandey is one of the most honest and transparent CEOs I’ve followed.

He’s clearly aware and open about the threats (and where Nutanix can improve).

I personally like this from leaders. Time will tell if it works for the stock.


As always, seems like Dheeraj is trying to speak to “knowledgeable”
analysts rather than investors.

Not sure if Dheeraj’s personal incentive (I believe 100K shares if price closes above $80) is is driving him to try and enhance his communication with the street.

Unfortunately, doesn’t seem like he is succeeding yet.

However, this is all irrelevant at the end, since company results will speak for itself in next few months.

I agree with CMFAlieb and others who see this interview as as statement of higher confidence… I am eagerly looking forward to next two quarters results… holding a half position with willingness to quadruple my allotment to this name as soon as there is a sign of wall st starting to appreciate this name.



Thanks to everyone for the great and knowledgeable responses to my questions. Much appreciated.

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“apologies for the formatting errors in my post.“

I think when enclosing a paragraph in i brackets

If you pick the wrong slash in the closing “i bracket” the remaining text continues to be italicized.

For example, when I pick a greater than symbol on my iPhone 6s Plus, the backward slash, “\”, is right there on same keyboard. This cancels the closing bracket if used and the etalics never end. One needs to use the forward slash, “/“, in the closing bracket.

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The worrying thing is this part:
“Through this letter, I want to assure our shareholders that the cloud is in its very early journey, just like the vertically integrated PC industry was in the late 80s.”
The PC industry wasn’t vertically integrated in the late 80s.
You could buy a chassis, motherboard, HDD, RAM, OS and apps from different vendors and mix and match according to your desires.
If the guy doesn’t understand the vertical vs horizontal model then I’d question his basic competence.
On the other hand, he may just have got horizontal mixed up with vertical.
Cheers, PB.

As an Agile guy:

Chowchows got it pretty much dead on with the definitions.

30,000 foot view: Agile software development is all about delivering customer value faster, and in a more iterative fashion than we’ve done in the past.

Classic example: Customer wants a sedan. We work with them to first give a skateboard, then a bicycle, then a motorcycle, then a car. But imagine through learnings and interactions we (and the customer) learned they love the wind in their hair experience of the motorcycle, so we pivot and give them a convertible. Everyone wins.

Agile teams generally measure their output (not outcome) in ‘points’ which when added up, give the team a ‘velocity’ over a certain period of time. No velocity = no output = no customer value delivery = no revenue.

A big problem for many orgs is that they de-couple output and outcome. When he writes balancing it with customer experience, I take it to mean they are measuring their output (velocity) while keeping the outcome (customer experience) top of mind at all times.

As for bringing it together with design: another pillar of Agility is having cross-functional development teams and reducing handoffs. Bring the design into the team, talk more, collaborate more, deliver value more.

A lot of that is reiterating what others have said, hope it still helps!




My understanding:


Speed of everything from decision making (change from HW to software biz model) to taking market share (as we’ve seen in Forrester HCI reports with NTNX extending lead) to speed of innovation organically or through acquisition (Xi, Beam, Frame, etc) to speed of development (what everyone has said about Agile development.

Key here is being able to iterate and improve products with fast development cycles. Companies used to deliver yearly, then every 6 months, then quarterly, monthly, every 2 werks, now weekly (TTD talks about this and TWLO too I think).

*not sure how frequent NTNX development (or agile sprint releases) are.

Velocity is important because due to their success, they are a target. More and more people will want a piece of this market. Especially the big guys, but if they can innovate and deliver faster, they will always bet a step or 5 ahead.

Balancing well with customer experience:

Easy to have high velocity at the expense of customer experience (poor or average NPS) or high customer experience focus (high NPS) and slower velocity.

Very rare and hard to have very high velocity and strong focus on customer exp.

Nutanix has proven they do both (speed of innovation and speed to $1B in rev (fastest tech company ever) and over 90 NPS (I’ve yet to see higher sustained scores)

Bringing it all together with design:

Think Apple simplicity and user interfaces here. Nutanix aims to have the same simple, beautifully designed user interface.

This is that “one-click” experience we here management talk about so often.

In my opinion design is part of user experience, but user experience also includes things like customer support…basically how the customer feels from the time they enter the Nutanix sales funnel, to setting up their service, managing it, upgrading, dealing with support, and the experience using the actual products (where design comes in).

All of that is considered by customers when it comes to NPS surveys.

Hope this helps.