The following is a guest post by Mark Trang, CEO and Cofounder of SocialPandas.
Don’t call it a comeback, I been here for years
Rockin my peers and puttin suckas in fear
– LL Cool J, “I’m Gonna Knock You Out”
Why businesses buy technology solutions (especially enterprise software) hasn’t fundamentally changed in our industry. Sure, there are more servers in the cloud, more SaaS subscriptions, and more smartphones in the workplace, but when you strip away all the technology advances and pricing models, the universal need of all businesses to grow revenue and manage costs remains unchanged.
So why has there so much attention around the “comeback” of enterprise-focused companies the past few months?
The enterprise space hasn’t gotten any sexier; the consumer web space simply became less sexy. Maybe even ugly.
This consumer web “un-sexiness” was led by the fall from grace of a number of high-profile companies like Facebook (when it didn’t achieve it’s stratospheric IPO goals), Groupon, Zynga, and others. The previously invincible “So-Lo-Mo” tagline of many B2C companies has become Not-So-Hot. And the “traction” bar required for follow-on funding (e.g. Series A, Series B) has been raised for consumer web companies.
Modern media (including Silicon Valley media) and financial markets (including startup investors) abhor a vacuum and have compensated with more attention and investment in more favorable markets, specifically the enterprise category. Even the talent pool of startup engineers and designers is also reflecting this shift of sentiment; I’ve recently spoken to dozens of candidates that are now open to roles at enterprise-focused companies like ours because their consumer web companies have hit a wall. These same folks would have shunned us 6-12 months ago in favor of founding/joining a pick-your-flavor-of-consumer-web startup. This phenomenon isn’t necessarily because these candidates love enterprise software but because they are now skeptical of ad-supported and e-commerce business models; they simply covet greener grass.
This field of greener grass has been shaped by a list of top performing 2012 IPOs led by B2B-focused companies including Workday, ServiceNow, Palo Alto Networks, Eloqua, and Splunk. 2013 is shaping up to be no different as many B2B leaders are all on the path to an IPO. The result? Early-stage investors are shifting their energy to enterprise-focused startups. Some have been investing in enterprise startups all along; others are now compensating (read: pivoting) for being overweight on too many struggling consumer web companies. This is causing a chain reaction where some startup teams are focusing on/pivoting towards the enterprise space to avoid the taint of “being a consumer web company” and has a secondary effect of a frothy rise in enterprise startup valuations.
What makes enterprise so different and seemingly resilient when compared to the consumer web world? I’d argue….nothing extraordinary.
The Business of Helping Businesses
Believe it or not, Apple didn’t invent the first enterprise mobile device and Excel wasn’t the first spreadsheet tool.
Many people forget that enterprise-focused tech companies of today have been doing what thousands of others have been doing for thousands of years: delivering tools and services to help other companies grow faster, cut costs, keep customers happy, and ultimately outperform competitors. Nothing special, right?
In fact, the business of providing tools and infrastructure for businesses is as old as the concept of business itself; in some cases, those supplying the proverbial “picks and shovels” in support of new industries end up as successful as the companies they sell to.
The earliest business “apps” date back thousands of years to support the most basic of business functions: accounting. Whether it was was counting crop yields or livestock, the practice of keeping track of stuff for business purposes exists today in the form of databases and ERP applications. In fact, many of the largest software companies in the world provide some form of accounting functionality. Coincidence?
So if enterprise apps have such a long history, how and when did consumer-oriented businesses become en vogue?
Who’s B2C’s Daddy?
Trade and commerce has been the foundation of modern civilization. Societies specialized in the production/distribution of certain goods/services which were traded with neighboring societies.
Over the past century, a shift from agrarian/industrial to information economies occurred in most of today’s first-world countries. Fewer and fewer people were tending fields and working in factories. Instead they joined the “white-collar” ranks of today’s information workers. This shift allowed for more people than ever to have both the increased time and income to enjoy discretionary goods/services, giving rise to the world of mass consumerism. Much of this shift was made possible by workplace automation which led to higher labor productivity. Only then did advertising and ad-supported business models (e.g. TV, radio, newspapers) become necessary, possible, and commonplace. Modern day ad-supported and e-commerce consumer web apps are an evolution of this. Because more people have more time than ever to be consumers, a whole host of products and services sprouted up around them to capture their time and money. And in the past decade, the internet has become the ultimate place where consumers could do both.
In a world where we are brainwashed as individual consumers to embrace things that are entertaining and trendy, we favor tales of overnight winner-take-all success vs. stories of ordinary accomplishments. We are addicted to home runs, not high on-base percentages. We celebrate the feeling of hitting the Powerball jackpot, not achieving modest but consistent returns from a mutual fund. We’ve been trained to be lean hackers, not pursue the longer conventional path.
So perhaps it’s not unreasonable to consider the way our preferences and tastes in our personal lives and modern popular culture are influencing and reinforcing our opinions of startup markets. This may explain why popular media (and frequently the VC community) been enamored with consumer web startups, despite their relative youth (in terms of the history and the actual age of founding teams).
When consumer web startups realize they won’t ever get an Instagram-type exit or can’t explain how they will ever generate revenue, their world starts to look more like Bravo’s “reality-show” version of Silicon Valley than the true story of how Silicon Valley really got it’s name. This isn’t a surprise since unlike Marc Zuckerberg, Robert Noyce never had a Hollywood movie made about him.
Living and working in the heart of this startup community in San Francisco, I’ve overheard many recent grumbles from consumer web entrepreneurs that it’s time for them to “go B2B” (meaning “back-to-business” or “back-to-basics” in their parlance) so they can “get traction” and raise their next round of funding. Their assumption is that pivoting towards the “ordinary” world of enterprise apps is less-risky and therefore easier to get traction/generate revenue. This couldn’t be farther from the truth (which I will cover in a future post).
For many of us in the B2B world, there is no “back-to-anything” since we’ve been here all along. And it’s not a pivot if you’ve always been moving in the same direction.
Now CEO and Cofounder of SocialPandas, Mark started his software career as a webmaster at a time when many believed the world would end because of the Y2K bug. More recently, Mark was an early member of Salesforce.com’s platform team where he helped launch the Force.com platform and grow the AppExchange ecosystem. Mark was also VP & GM of Platform Technologies for LivePerson, where he launched and grew their API business. Mark was also an early employee at several SaaS startups and an enterprise software consultant at Deloitte. If there was a Noodle-of-The-Week Club, he’d be their supreme chairman and create a Michelin Star-equivalent rating system of the world’s top ramen joints. Mark holds a BA and MBA from UCLA.