The Amazing Story of Guidewire Software


Guidewire Software (GWRE) is an $8 billion market cap company that provides software solutions for property and casualty insurers. The business currently produces $750 million in revenue, growing ~20% per year, and has hit guidance 28 quarters in a row. The stock has gone up accordingly:

Guidewire Software was founded in 2001 by current CEO Marcus Ryu and five co-founders. I think you will enjoy this interview with Marcus Ryu as much as we did.

How did it work with six co-founders?

I think the key to getting through adversity, both with our investors and for ourselves was that we were a team. We were a team of six founders. I had five co-founders, which is a pretty large group. The company would have failed without any one of us.

I’m quite certain of that. Essentially, we signed a blood pact at the start of the company, which is, "Look, we may fail at this, but one thing we will not do is second guess our commitment to it for at least this duration of time. We’re going to just absolutely trust each other and commit to pushing as hard as we can for this duration. Then we’re going to be rational to see if we’ve achieved enough progress to make it sense to re-up again.

How did you decide on what type of company to build?

We kind of took as a blueprint all of the things that were conventional wisdom at the peak of 2000 or 2001 and said, “Let us just do the opposite.” Instead of trying to invent a new market space, let’s try to solve a well established problem. Instead of trying to do something really glamorous, let’s try to find the least glamorous thing that we can do. Instead of fetishizing the cult of a CEO that will lead everyone to the promised land, let’s be a community of radically collegial equals that will solve problems together rationally.

We had all these very high minded principals. Then we said, "Well, there’s a fine line between six guys who are going to change the world and writing a constitution and six dudes with a PowerPoint presentation who are unemployed. And so we had to find a problem to solve.

The core thesis was, look, it’s very difficult to come up with another horizontal enterprise software category, but the big dark matter in the world, and I still think this is true today incidentally, are on very industry specific, mission critical problems that are difficult for the largest software players, the Microsofts, SAP, et cetera, to address because they don’t have the domain expertise, they don’t have the patients, and the market size on the surface may not be obviously appealing.

Let’s find something that’s unglamorous. Let’s find something that’s substantial and vertically specific. Let’s find an area where really quality software engineering can create deep definitive economic value. That led us more or less like a beeline straight to property and casualty insurance.

It’s about a $2 trillion industry in terms of total revenues and they pay out about 60 or 70% of that every year in claims. That’s what they do. They intermediate risk and then they pay out to claimants. There’s an asymmetry between the fact that the average claims worker is paid maybe $40,000 a year, but is writing out checks for $2 or $3 million a year and doing it in 1980s COBOL mainframe systems and buried in paper with all kinds of manual processes, et cetera.

Our thesis was that these individuals, as hardworking as they may be, were making systematic errors that were causing dead weight economic loss. It’s not just the better software would make their lives more ergonomic and productive, that they would actually prevent errors that were dead weight lost to their own companies. That there would be a very compelling economic value proposition there.

Were you or your co-founders domain experts in insurance? If not, how did you go about building that knowledge, coming up with those insights?

None of us were insurance people as such. The closest that we could claim to that was my own brief tenure in the insurance practice at McKinsey, which allowed me to spell property and casualty correctly, but that was about it.

We had a lot of education to do and we recognized that one of the first things we needed to do was to marry two very disparate skillsets. People who understood how to build mission critical software with people who actually understood the PNC domain.

On top of that, we then had to lay our people who understood how to deliver a large scale enterprise transformation projects. Over the last few years, we’ve had to add people who understood data science as well. Those are quite different strands of DNA. The cultural challenge has been, well first, how do you recruit those individuals and how do you unify them in pursuit of a common goal and make them feel like they’re part of one organization.

This isn’t like build a piece of software in two weeks, put it up on the web, have some people download it and start showing a chart with customers and revenue up into the right. How did you go about selling a mission critical system? I think it was years before you got a product and customers. Talk more about that. That process.

Yeah. It would be hard to find a company that was more antithetical to the conventional venture capital wisdom about what a company should look like. There was no possibility of experimentation; there was no viral adoption. There was a profound asymmetry between the negotiating ability on the part of six dudes with a PowerPoint presentation and a vision for a product and a multi-billion dollar enterprise

Everything was wrong in that equation. What was right, however, was that we actually addressed exactly the market need at that moment. There was one bit of wisdom that maybe I’ll impart to you just because I get no credit for it, but it’s something that I’ve thought about many years, over the years was that an entrepreneur advisor of ours early on said, "Look, you’re going to start a company. It’s actually not what I would advise you to do because risk adjusted, it’s a poor way to spend your career.

But if you’re going to do it, recognize this that in the start you will have no assets. You will have no product, you will have no brand, you will have no employees, you will have no market credibility. You’ll have nothing, except for one thing. You’re going to have one thing that is more precious potentially than all of that, and that is that you have the potential to hit the head pin of demand exactly at the right angle. You can exactly know what the market wants. If you get that right, that can solve for all the other problems.

It’s obvious, but I think a profound insight that I’ve reflected on a lot. We had that right, but the go to market was incredibly arduous for us. It was uphill both directions in the snow. There was a lot of that. The hardest part was that it was not enough merely to persuade our interlocutors, our prospects with the fact that we had the right ideas and that we were smart and capable and determined.

We had to persuade them that the company was going to survive and that it was a sensible career risk for them to take. As it turns out, it was not rational for any of our early customers to buy from us. We being rational guys are at least fancying ourselves to be that knew that, so it was very, very hard.

What we had to do in the early days just to keep ourselves from despair was to find other ways to measure sales progress other than a sale. We kept score for how many conversations have we had, how many people have we known, how large is our tree of network or network of potential influencers and well-wishers, how large has that gotten. Tried other ways to instrument and feel good about the progress that we were making.

I was not the CEO in the beginning of the company. One of my co-founding partners was. He had one very, very special quality, which was a kind of insane doggedness about these conversations. I’ll tell you another little story, a thing that he used to say. He said this actually at the very first day we were together as a founding group. He says, “I’m not the smartest of you guys. I’m definitely not the most insightful, but I am sure to be the hardest worker. No one here was going to outwork me. When I was in college …” I’m speaking for him now.

He says, “When I was in college, there was a guy who managed somehow to date every beautiful woman who went to our school, and he was very ordinary looking and very average in every sense. When I asked him what his secret was, he said, I’m just the guy that asks the most. I’m going to be the guy that asked the most, and I have no problem being rejected.” He says, “I’m going to be that guy and we’re going to be that company. We’re going to be the company that asks the most.”

That’s what we were. We asked every person we knew. The P&C insurance industry employees like two million people, so there are a lot of people to ask, and most of them said no. Tiny probability is multiplied over a large enough N is enough to generate that first customer and then maybe the second and so forth.

How did you think about funding the company?

I think objectively, when we question if we were a fundable company because our minimally sellable product was two or three years to build. The minimal functional footprint to even be credible for what we were promising was so large that it took years to build. There was no way to buy 10% of it. There was no way to sample it. You just had to make a big transformation decision as a company and commit real capital.

I think the way that we solved that problem was finding investors to whom I will be eternally grateful because without them, I wouldn’t be before you today, but who may not have understood how hard it was going to be.

Again, to use other metrics and other bits of evidence of our market traction besides actually having a customer that persuaded them that maybe we were on to something, but they, I think, did not fully appreciate just how daunting a sales challenge we had before us.

We had some tense discussions over the years saying like, “Is this going to go anywhere?” We had to remind them. I said, "Look, one thing that we were very truthful with you from the very beginning was that we’re going to be … There are some businesses that no one has ever thought of that you imagined in the shower and become explosive and everyone says, ‘Why didn’t I think of that?’

There are other businesses that people don’t imagine that have enormous economic value to them, but they’re standing behind a huge barrier to entry. There’s nothing particularly technologically innovative of what we’re doing, but we’re going to climb this huge barrier to entry and get to the other side.

The reason that you don’t see other companies doing this is because that barrier is so high. If you believe in competitive markets, there’s no such thing as a fantastic market with no competitors. The reason that this market is not populated with others is that this barrier to entry is so damn high and we’re going to be climbing it for a long while and we’re 10% up the mountain." Some version of that message was what we used. That’s also how we comforted ourselves when it felt like we had no shot.

I think most startup journeys are not straight up into the ride and whether you call it the valley of death, the valley of despair, you guys had your fair share of those. Can you share some stories and how you persevered?

I’ll tell you a covering story first, which is something that another one of my co-founding partners who was the CTO. He told this story internally early on about this Chinese parable which you can look up on Google, but it’s about a farmer and his son.

It’s a farmer and his son. They were very poor and they had a horse. That was their only asset. One day, the horse runs away and the neighbors say, “Well, that’s a calamity for you.” The farmer says, “Well, maybe yes, maybe no. We’ll see.” Then the horse returns, but it’s brought with it a herd of wild horses. Now, they said, “Well, you’re rich.” The neighbors say, “You should be very happy.” The farmer says, “Well, maybe yes, maybe no. We’ll see.”

Then the son is trying to train in one of the wild horses and falls off and breaks his leg. The neighbors say, of course, “Oh, this is a calamity for you.” He said, “Well, maybe yes, maybe no. We’ll see.” Then there’s a war and it kills all the young men in the village, but not the son because he didn’t go to war. He had a broken leg. The neighbors say, “Wow, how fortunate for you.” He says, “Maybe yes, maybe no. We’ll see.” That story.

The incredible thing is my partner told us this story in the early days and he said, “This is how we’re going to get through some difficulties.” Then almost like a movie, we had episodes of incredible good fortune and incredible disaster, each of which turned out in hindsight to have been the opposite of what it seemed.

I’ll give you a few examples. We lost our first customer very early on. They canceled the project and it turns out that we would have built the wrong product because it was led by a very very aggressive guy who wanted something other than what really the product ought to have been. Long story short, it really would have thrashed the product in a direction that would have hurt us, compromise us with our early customers.

We had a very tense relationship with our investors for a spell and they wanted to impose a CEO on the company, which we thought that was a bad idea, but there was a moment where we relented. A CEO was imposed on the company for about nine months. It was a disaster, which we thought … We nearly ran out of cash, but it turns out that then sort of transformed our relationship with our investors where they were a bit humbled by that. Whereas if that had happened another three or four years later, it would have been much more damaging.

Then there was an episode where we were sued about nine years in by our primary competitor. It was Accenture, on essentially a couple of business method patents. We were actually nearly put out of business because our customers, insurance companies said, “Well, it’s not about the merits of the case. It’s just you have a litigant here who has the determination to prevail and you could be out of business before this is resolved, so we just can’t buy your software. We can’t spend $50 million on a transformation project and be enjoined from using the software.”

For a year, our sales were paralyzed and I had discussions with my wife and I know my partners had with theirs saying, “Maybe we threw away our career. There will be nothing to show after a decade.” How did that turn out to be such a good thing? Well, it distilled the energies of the company into this white hot rage in those days where we said maybe …

This is one of my proud moments in the company where I said, “We thought that we were starting a company that was going to achieve all of this and maybe make us wealthy, et cetera. Well, maybe our destiny was to create a company and just to stand up to this bully. That’s our existence. That’s our purpose. I’m here for that. I mean, who’s here with me? Because I sure as hell am not going to capitulate now and we’re not going to let this win. From now henceforth, we’re not going to call them Accenture. We’re going to call them the enemy.”

To this day, there are people in the company who will say, “So what does the enemy think about this? I just saw this press release by the enemy, and we are going to fight.” As it turns out, it also delayed our IPO by a few years, which was an incredible blessing because we were that much more prepared at the time.

The people who were with us through that moment we’re bound to the company and its mission and its identity with such emotion that we’re a much more resilient company for it, and I wouldn’t trade that for the world.

I’m not wanting to say, “Look, everything happens for a reason.” I think only feebleminded people believe that. There’s a lot of random things happen to good people, to bad people. I just would suggest to you that sometimes the real significance of an event, positive or negative is not obvious at the moment that it happens and that it’s important as an organization to have the equanimity to cope with both the highs and the lows.

Now that I’ve observed a few companies, especially ones that have had a lot of breakout success in the early days, sometimes I caution them that maybe the success is the worst thing that could happened for it to have come to you this fast because it’s going to send the wrong signal, set the wrong expectations, attract the wrong people. Not that you can always control these things, but that’s been my experience at least.

Did you know it was going to be this big, that the opportunity at that moment in time was this massive to build one of the largest vertical SaaS companies in history of software?

Well, that’s more grandiose characterization than I would use, but I think we can be the best at what we do in our space. One thing we did validate in the very earliest days was that the basic arithmetic on how much economic value we could create and therefore how much we could reasonably ask for and therefore how large a company we could build around that, that all kind of penciled out in a sensible way.

If you have a $2 trillion industry and you persuade the industry, you build a solution of adequate value that you can charge some number of basis points on that. As it turns out, it’s around 30 or 40 basis points on that premium, then that’s a multi-billion dollar opportunity.

Then the question is how much of it is realistic to hope to capture yourself? Again, I return to this barrier to entry theory that we had that it’s going to be incredibly hard to get over this summit, but if we actually get there, we’re going to find a lot of market without terribly competent competition. Without declaring victory, which I would never do, that has sort of played out. That there is actually a lot.

Another phenomenon of course is that this was this tied to our original belief that if you’re solving a mission critical enough problem … In our case, we are the transactional system of record that defines what it is that an insurance company is, namely holds legal contracts that indemnify people against risk and the like. If you have that, then almost everything else you do as an insurance company that’s not horizontal or GNA in nature ties to that system in some way.

You become the natural consolidator and partner of choice for even other partners who want to add value into that process, and that’s a position of great advantage to have. You have to earn it. We’re still earning it. We’re still early days, believe it or not, but that was an attractive attribute.

One thing that we would never wanted to be was just a feature. We wanted to either go for something at the heart of it however hard it would be, however long it would take, and then be in a position to be that strategic counselor to our customers, and I’m grateful for that chance.

Insurance industry has always been perceived as not a great category, not a great market. Did that weigh on you at all or you saw that as the real opportunity?

Well, to our mindset at the time, we embraced … The more negative people were on it at the time, we said, “Well, these are all features. This is just fantastic, the fact that it’s so difficult and unglamorous.” I think we had a sensible thesis and I think we had an argument for why there was such profound dissatisfaction with the technology incumbents that we were competing with.

We said, “We can definitely build better software than this.” We also saw the way that they had become all kind of custom development organizations instead of building a true product. We said, “By maintaining greater product integrity, we can prevail maybe where these organizations happened.”

But it’s true. There’s a graveyard of dead software companies, none of whom you would likely have heard of that tried to serve the insurance industry. In most cases, they either ran out of capital or they did not capture enough market to be interesting companies in the long run.

The final thing I’ll say is that in that era perhaps when that table pounding was happening, the idea of building a vertical software company was definitely counter-intuitive. It wasn’t a big enough market. It’s hard to sell to whatever it might be.

I would like to think that Guidewire along with a few other super examples, like Veeva was a more successful company than Guidewire, have proven that if you solve a deep enough problem, and those very deep problems tend to be industry specific and you do it in a sufficiently general fashion to capture enough market space, you actually can create an interesting and independent software company. I’m very gratified that we were able to prove that in our own little world.

What do you think of the current entrepreneurial environment?

If I have one criticism of the current entrepreneurial environment that I witnessed, it’s a lack of patience on the part of employees, on the part of entrepreneurs and investors.

I don’t want to be the old curmudgeon who just says things are much harder than you whippersnappers understand. My observation is that things are always harder than they seem. The attitude that it has to be explosive and financially explosive right from the start, I think is just a very dangerous expectation to go to in with and it won’t allow you to solve a certain category of very interesting problems.

This interview was transcribed from the interview below:

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Something about Accenture as the ‘enemy’ of Guidewire was bugging me for a while. Later I realized why.
It reminded me of the story of Marico vs Hindustan Unilever (link).

And also of the battle between Southwest and United Airlines in the 1990s. Those interested can find the video of Herb Kelleher’s speech here.
I love this video for the use of the War metaphor for inspiring employees as well as for the fact that one rarely gets the opportunity to see a Founder / CEO’s direct address to his / her employees.


Nice write-up. It is interesting to see that Guidewire is now seen as an entrenched player in insurance software. Does anybody have any comparison between Guidewire and the other players in this space?

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This is probably something you are already aware of but I think Gartner’s Magic Quadrant reports give an idea of the product quality of each of the players.

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Thanks Rohith. Gartner reports tend to be paid. Is there a way to get a crux of the report from cheap seats?

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I found the above link to be helpful.
Hope you find this useful as well!

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