Category Archives: SaaS

Don’t Call It a Pivot, We’ve Been Here For Years

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The following is a guest post by Mark Trang, CEO and Cofounder of SocialPandas.

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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

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Abacus: first enterprise mobile device

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.

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Economic tablet: first accounting app

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?

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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.

About Mark
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.

 

Because Money is Sexy

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Denis PombriantThe following is a guest post by Denis Pombriant, CRM industry analyst, author, and CEO of Beagle Research Group.

Why is enterprise sexy again? I take a long view of the question and position it within a macroeconomic trend.  The short answer is that enterprise software is sexy again because its time has come around again.  But here are some details to consider:

  1. More than anywhere else, enterprises live and die on the saying that they spend money for only two reasons: To make money and/or To save it.  So we are witnessing a paradigm shift, which your question alludes to.  Conventional, or I suppose we must call it legacy, enterprise software was built for a paradigm whose major attributes included client-server as state of the art, manufacturing as the primary business activity and one size fits all products.  That’s all gone.
  2. We are also at the end of a macroeconomic wave often called a Kondratieve Wave, or K-wave for short, whose major attribute was information technology (IT) as a competitive tool.  IT has become so much embedded in the fabric of business that it is no longer a disruptive innovation or differentiator.  You either have IT or you go out of business.
  3. The end of a K-wave usually brings a collapse of prices as everything commoditizes.  As your products lose their ability to command high margins, your only choice is to get lean or go home.  Companies that elect to go lean use information technology to shave cost.  Big companies need more technology than any others.
  4. The end of a K-wave (which can last 50-60 years) implies a new beginning.  But it takes time for a new wave to spin up to the point where it can support the huge demands of the enterprise.  Salesforce and NetSuite are each over ten years old and only in recent years have they become successful at penetrating the early adopters of the enterprise.  Social solutions are less than ten years old.  Twitter was founded in 2006 and Facebook in 2004.  It has taken a long time for them to scale to be able to support enterprise volumes and equally long to demonstrate value to the enterprise.
  5. The new enterprise business processes that will demand increasing amounts of these and other technologies are only now being built out.  Until there were tools resident in the cloud, able to collect and crunch massive amounts of data it was futile to try to imagine new business processes but now imagination can take wing.  A great example is Zuora, which has invented subscription management.  Zuora couldn’t have been imagined until cloud computing and SaaS became successful and companies became aware of the pain of doing business in a subscription world with manufacturing oriented ERP systems.  See my book, “The Subscription Economy: How Subscriptions Improve Business” and pay attention to the last chapter on metrics.  Most of the metrics don’t even make sense if all you know is ERP.

So, why is the enterprise sexy again?  Its time has come again.  There is a new business paradigm to be addressed and there is money to be made and saved by those who get there first.  Enterprise is sexy because money is.

About Denis
Denis Pombriant the founder and managing principal of Beagle Research Group, LLC.  His work appears in most major CRM publications both in print and online, in North America and in Europe.  His new research on social media adoption and benefits with Esteban Kolsky was published in August.  His new book, “The Subscription Economy — How Subscriptions Improve Business” is available on Amazon.  Pombriant is always working on a book and he maintains an active research, writing and speaking calendar.  He lives and works near Boston.

Special thanks to Craig Rosenberg, CEO and Editor of Funnelholic Media for connecting us with Denis.

 

Bill Wesemann: Sexy Has Come Full Circle

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Silicon Valley veteran Bill Wesemann knows sexy. With over 30 years experience, Bill has done it all, from selling computing services in the pre-PC era, through running worldwide sales working for Steve Jobs at NeXT and an IPO at Genesys, to angel investing and advising today. Below, Bill shares his insights on how delivering and selling enterprise software has come full circle, as well as a surprising story about the darker days at NeXT.

How did you get started in technology?
“In 1981, I was a pitcher in the San Diego Padres organization in need of surgery.  (By the way, the lifestyle of a minor league baseball player is similar to working for a startup.  You sleep when and where you can, and if you win that night’s poker game, you upgrade to the buses’ spacious overhead luggage bin.) Waiting in the doctor’s office for my surgical consult, l picked up a copy of Forbes with an article that changed the course of my life. It featured the Top 20 information services companies, among which were several big players selling computing capability directly to end users, including Tymshare.  I decided on the spot that was my next step and before too long I’d landed the job I wanted in sales.”

What has changed since the sexy pre-PC era?
“What I find really interesting is what was sexy at the start of my career in the early 80s has come full circle.  What made Tymshare and its competitors so revolutionary was that the buyer was the end-user and didn’t have to be hardcore programmers to use our service.

Just prior to corporate adoption of the PC, Tymshare offered “fourth-generation” software that allowed analysts to quickly develop applications and empower the end user.  In addition to owning the X.25 packet network called Tymnet, Tymshare also had early versions of email for which we charged $0.25 for every 1K characters.  Can you imagine that cost structure today? Needless to say, with an uncapped pay-as-you-use model, the bills got very big, very fast. As companies struggled to contain costs and set standards, a new regime run by the freshly-created Director of MIS, emerged.  With increased PC adoption, early versions of fixed-price packaged software, and solutions moved in-house, the model unraveled. In 1984, Tymshare was sold to aerospace manufacturer, McDonnell Douglas.

Fast-forward 30 years, and with the advent of SaaS, cloud technologies, social, and mobile, and the end users are once again discovering their own solutions. With today’s multi-tenant SaaS architecture, the ability to deliver cloud services anywhere to any device, and cost-effective per seat or pay as you go pricing has taken the enterprise software industry by storm. As vendors like Salesforce.com have shown, it is more cost-effective, scalable, and flexible to use on-demand could-based software.  So we have come full circle, only this time the economics favor cloud-based applications.”

What’s sexy today?
“I think the rise of angel investors in the past decade has been very good for enterprise all around. Early stage investors can not only participate in advance of seed rounds, but can contribute more than money. Not only can I share domain expertise, but I am also a partner and true fan of the business and the founders.  While the interests of traditional VC models and what is best for the business can sometimes be at odds, angels can be more patient and understanding of the ups and downs inherent to an early-stage company. Because we can become personally involved with the business, I believe this trend will continue to have a huge impact on the success of a startup.”

You know this post wouldn’t be complete without a Steve Jobs story, right?
“Well, I figured.  Let me quickly back up to the time just before I went to work for NeXT and set the stage for a classic Steve story.

When Windows 3.0 put a GUI on enterprise applications, people could actually use them – talk about sexy for the enterprise!  Before applications were natively built with a GUI (think PeopleSoft in the late 80s), we sold tools to augment mainframe applications with a Windows or OS/2 GUI. I sold one of those companies, Viewpoint Systems, to KnowledgeWare, a computer-aided software engineering (CASE) company whose CEO was none other than hall of fame quarterback Fran Tarkenton.  When I joined NeXT, I went from working with a CEO who knew everything about sports and nothing about software to a CEO who knew everything about software and could care less about sports. Talk about 180-degree change!

I mention CASE because it sets the stage for a classic Steve Jobs sales call story.  You see, NeXT sold enterprise application development software, so he actually had to go on sales calls.  This particular meeting was a big one with the US Postmaster General. There we are in a room in Washington DC, 20 guys in suits and the two of us (Steve clad in his classic uniform, of course).  Their very first question was, “Steve, can you tell me what you think of CASE?”  I cringed, and a full 30 seconds of silence passed.  Steve then pretends he’s going to sneeze and says into his hand as loud as he can, “It’s bull shit”. I cannot describe the stunned looked on their faces. Another 30 seconds of awkward silence passes and I say, “Next question?”  I’ve got so many of these great stories, but we’ll save them for a future post.”

What did you learn working for Steve Jobs that applies to entrepreneurs today?
“I will say the time I worked with Steve at NeXT were tough times for him. Some had started to write him off and he was struggling to find himself.   Even through the darkest days, the only time I ever saw him really down was when he briefly decided to give up the user experience and adopt the Windows GUI over the beautiful object-oriented interface we’d developed at NeXT.  Obviously he ultimately didn’t have to do it, but he almost conceded.  It was his spirit and relentless drive that never allowed him to give up.

I believe that those that were fortunate enough to work for Steve at any point in time are the better for it. I have had the privilege of working for many great companies, but I look back at those days as the best of my career.  We worked every day with a singular goal of doing something unique and contributing to something special.  It may sound trite, but that type of culture and unwavering dedication makes financial rewards secondary.   We got up everyday to hit a grand slam.  We weren’t satisfied with a base hit and we never gave up.   I think this is an important lesson for any entrepreneur that faces the fire, you’ve got to double down on faith and push forward.”

About Bill 

Bill Wesemann is a Silicon Valley veteran with over three decades of experience in enterprise software. He began his career in technology in the early 80s selling computing services in the pre-PC era with several successful exits. In the 90s, he ran worldwide sales for NeXT, led sales at Genesys, which went public 1997, and was then CEO of NextPage.  For the past decade, he been an angel investor, advisor, and on the Board of Directors LivePerson (LPSN).  

 

It’s time for me to confess…

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I think enterprise software is sexy as hell.  There, I said it. I think creating value that customers will pay for is extremely hot. A recurring revenue stream makes me giddy.  And nothing, absolutely nothing, turns my head more than profitability.

Why is enterprise boring by definition?  How can improving or changing the way people do business not get you fired up?   Even when I was a noob to the Valley, I still preferred business over consumer. Maybe it’s just because I don’t understand consumers or I don’t want to fall prey to their fickle nature.  Maybe I really am just old and boring and can’t accept it.  Or maybe it’s because I grew up in the age of SaaS.  At my first startup in 1998, we didn’t even know what to call it. We said, “Um, it lives in your browser.” [Blank stare.]  “You can log in from any computer, even from home.” [Furrowed brow.]  Our incumbent competitor wasn’t just premise-based, but kiosk-based, so it was a mind-bending concept for our prospects to grasp. At some point these magical services became ASP, then on-demand, then SaaS, and now we’re all happily living in the cloud – until the next rebrand.

The inspiration for this blog came after reading a great article in TechCrunch where Alexander Haislip explains that the model to follow is not Instagram, but companies that have “real intellectual property, obvious monetization and a plethora of cash-rich potential acquirers.”  I loved Alex’s contrast on the statistical exit probability and valuations of consumer and enterprise markets…. but it was the reader comments that hooked me. It was a lively debate and I’d wager I could guess the age of each commenter within 5 years.  And then I found the one that struck a nerve, “God in Heaven, I don’t know ONE techie who WANTS to build that crap!”

Crap? Really?

As I sat ranting in my head about how these SoLoMo app building, Red Bull drinking, freemium loving, hoodie wearing twentysomethings don’t have a freakin’ clue, it hit me – I am a complete hypocrite.  I cannot count the number of times I’ve turned up one side of my lip while emitting an audible sound of disgust at the thought of working for a global, lumbering, legacy enterprise like Oracle or Cisco. How could that enterprise be my enterprise?   I realized that, just as the newest generation of entrepreneurs and enthusiasts have little understanding of what’s come before them, I’ve completely failed to pay homage to all that came before me. … and what those companies did to empower our generation to build the next great thing on top of their achievements.

When I joined the “dotcom” ranks, we were revolutionizing the world with “the Internet,” turning tradition on its ear, changing the way the world communicated, and had zero respect for anything that got in our way.  In hindsight, it’s clearer to me that while all of that is true, we owed that opportunity to the trailblazers that made our revolution possible.  Without the on-premise and client-side software providers, what improvements would we have had to offer with our fancy new SaaS-iness? Without the hardware, database and communications infrastructure, what would we have built upon? The big boring behemoths are behemoths precisely because our world can’t run without them.  Remove that infrastructure and our apps, enterprise or otherwise, grind to a screeching halt.

I’d also venture to say that this generation’s arrogance is completely justified.  Social and mobile are absolutely revolutionizing how the world connects and interacts.  It did, however, take a lot of once-alluring hardware innovation and uber-sexy enterprise (and consumer) software to get here.

Thankfully Aaron Levie has declared enterprise is sexy “again” (twice!). And even if Dustin Moskovitz and Drew Houston haven’t explicitly declared their infatuation they (along with others) have certainly done it in deed. Yes, fanboys, someone can voluntarily leave Facebook for enterprise without dying of boredom. And just for the record, I love SoLoMo apps, Red Bull and hoodies.  Just don’t get me started on freemium unless you’re ready for an earful. It’s a topic for an upcoming blog.

Here’s my point: From mainframes to mobile, everything that has value was sexy at some point, even if that’s no longer the case.  This blog will feature interviews and guest posts from everyone along the way.  Tales from the trenches, lessons learned, and a timeless perspective on who and what has contributed to creating the industry I love.

Wanna share your sexy story through a guest post or interview?  Let me know in the comments or connect with me on Twitter.

Special thanks to David “The Punctuation” Gleason for his Wikipedia mind, colorful insight and masterful editing prowess.