Five Myths Of The Enterprise Startup
Editor’s note: This post was written by guest contributor Aaron Levie, CEO and co-founder of Box.net. You can read his previous posts here.
One of two things is going to happen in 2012: either the world is going to end as the Mayans predicted, or people are finally going to start to see enterprise software as cool (which I have long predicted). Now, most people will never think enterprise software is as sweet as I do; I can live with that. Services that help you access the world’s music or connect with your entire network of friends will always win the technology popularity contest. But we do spend an awful lot of time talking about coupons, randomized video chat (likely NSFW), and virtual bars. I mean, these are totally cool areas of innovation, but when compared to $3.4B software acquisitions and SaaS stocks up 60%, or over-performing IPOs and more rumored to come, I’m not sure the world of enterprise software is that lacking in spice.
And yet, mentioning that you work for an enterprise software company in causal conversation is an instant buzz kill. Try picking up a girl with that opening. Most people would rather talk about Angry Birds or even health care policies. To be fair, enterprise software’s stigma is not entirely undeserved. It’s not easy to love an industry where vendors often audit their own customers to claim revenue, product updates surface three times a decade, and solution lock-in is the standard.
But these characteristics are relics of the old guard of enterprise software. Almost everything about this category—from how software is built to who’s buying it—is undergoing massive change, and many longstanding assumptions no longer apply. So I figured I’d take a stab at debunking a few enterprise software myths to help explain why 2012 will usher in a very different era for enterprise solutions, making it the year of the enterprise software startup.
Myth #1: There’s no sizzle in enterprise software
If the consumer internet is technology’s Hollywood, as SnapLogic’s Gaurav Dhillon recently suggested, then enterprise software is its Waterworks. Or its Yanni – profitable yet dull. At least that’s how the category is perceived. Either the services are irrelevant to us individuals, or the problems being solved are relatively esoteric, like software that helps you get better performance from your servers (oops, that turned into a $40B business). But the cloud takes the category mainstream, letting us all participate in this world of enterprise software, and meaningfully changing how we work and communicate. We’ve seen an explosion of end-user-centric business solutions, finally making enterprise software relevant to all of us.
A film producer, Facebook co-founder, and early employee of Pixar all have started enterprise software companies to make that happen. Not exactly the Mr. Watson crowd. Enterprise software today is home to far more interesting rivalries than the battle for check-ins, or ‘likes’ vs. ‘+1s’. For instance: who’s going to dominate the enterprise email wars as they move to the cloud? A land grab for most other markets is quickly emerging, with ‘cloud’ spending broadly estimated to become $149 billion dollars by 2015.
Myth #2: There’s no scale in enterprise software companies
Enterprise software is still mistakenly seen as a category defined by niche markets, extremely long paths to reach customers, and wildly expensive sales cycles. Crossing the Chasm outlined the original progression of software adoption: first within smaller markets, followed by expansion to larger audiences.
But the shift to the cloud explodes this model, as software is now available instantly to nearly every business in the world. And getting to them is far easier than ever before.
On day one, cloud solutions are global, horizontal, and can support companies of all sizes. Without having to aim a direct sales force at a particular segment, you can quickly analyze and optimize for areas where adoption is happening organically, instead of having to laboriously (or blindly) chase down customers. And with 500 million+ information workers worldwide, the question is not “is there scale?” but rather “how do you get to scale, quickly?” Freemium, open source, and viral enterprise applications are the new distribution models. And some companies, like Atlassian and New Relic, are audaciously doing away with the traditional sales model altogether in pursuit of volume.
Myth #3: IT organizations are slow or difficult to work with
And then there’s the process by which new technology gets implemented and “blessed” within organizations. Steve Jobs notoriously avoided selling to big businesses due to the small number of enterprise gatekeepers, otherwise known as CIOs. Their job is to care for and manage the security, integration, maintenance, deployment, management, and support of a wide range of technology. With careers on the line for every new piece of software introduced, their interest in carefully vetting (user translation: slowly adopting) solutions is more than justified.
But after spending the past few decades dealing with delayed roll-outs, over-budget projects, and unhappy users, IT departments have had enough. This is why they are radically speeding up the implementation process, and cloud solutions and startups are benefiting disproportionally. Major corporations like Procter and Gamble have created IT groups charged with piloting emerging technologies to solve problems that didn’t even exist (or simply couldn’t be solved) a few years ago.
Many of the Fortune 500 are embracing a “bring your own device” to work mentality and IT model, allowing individuals to choose their own hardware and software, greatly accelerating the adoption of cutting-edge technologies. The implications of this change are profound, as it completely rejiggers the existing information technology architecture of most organizations—from security, to apps, to the content on these devices, few existing solutions adequately solve our future problems. And that spells opportunity. With IT buyers getting in front of this challenge and trend, the two scarcest resources you need from your customers—budget and motivation—are about to increase dramatically.
Myth #4: It’s impossible to compete with Microsoft and Oracle
The biggest hurdle to starting an enterprise software company, or securing the funding needed to start one, has long been the (once justified) fear that Microsoft, Oracle, or some other giant could easily prevent you from getting to scale. As these players ‘controlled’ the underlying technology platforms and distribution channels, the expectation was that you’d be bought by them at best, and brutally crushed at worst. Not the most favorable economic terms under which to launch a new company.
But in the cloud, customers have more choices than ever before. And these choices aren’t easily influenced by the methods Microsoft and others have mastered. When competing applications are just a few clicks away, undercutting competitors by delaying customers is no longer a meaningful strategy. Oft-used marketing jujitsu (FUD) doesn’t work in a world of near-instant adoption and testing of applications. And even applications with lengthier implementation cycles are finding today’s landscape to be far more favorable to emerging players. Companies like Workday are increasingly taking share because a premium is being placed on their ability to out-execute traditional vendors.
Increasingly some of the world’s largest enterprises are going out of their way to find solutions not delivered from the big players, instead looking exclusively for solutions from unencumbered, independent startups. They no longer want to instruct their traditional vendors about market directions, or deal with the conflicting interests of their providers (why doesn’t Microsoft build for Android and vice-versa). Further, most enterprises are either over-served by existing solutions’ complexity, or underserved in the areas that are most important today: mobility, social, ease of use, speed, etc. Using focus as a competitive weapon, startups can ensure that large incumbents simply can’t respond adequately to new customer demands and waves of technology.
Myth #5: You can’t innovate in the enterprise
A longstanding fear and reality with enterprise technology has been the undue influence wielded by customers when it comes to product roadmaps, with purchasing decisions made based on a vendor’s ability to win an RFP bakeoff. But Chris Dixon reminds us that enterprise SaaS gives users greater influence over technology adoption, leading to products that are built to be used, not sold.
This shift has dramatic implications for enterprise innovation: building to drive real user and business value, not to produce a more appealing white paper. Software like Yammer, Do, Asana, Zendesk, and GoodData are all user-introduced services, which means they’ll only see adoption if they’re solving real problems, consistently. Unlike traditional enterprise “systems of record,” tools today get tossed out if their utility wanes. With increased competitiveness, democratic platforms, and lower switching costs, the slope of the product innovation curve necessary to attract and retain customers has increased considerably.
2011 ushered in the early commercialization of social applications and platforms, big data, business intelligence, and new collaborative tools in the enterprise. Gartner bets that 2012 will be about “the convergence of cloud, social, mobile and information into a unified set of forces shaping almost every IT-related decision.” Industry jargon aside, these innovations, and their accompanying high-growth markets, will be dominated by enterprise software companies that didn’t exist a decade ago.
So when Robert Scoble says enterprise software isn’t sexy, he’s mostly right. But this is changing rapidly. The category is shedding its slowness and stuffiness, and the new players that are emerging to define it look nothing like their predecessors. 2012 is going to be a renaissance year for enterprise software, and everything—including, most importantly, the way we work—will be transformed along with it.
Photo credit: h.koppelaney
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