6. The transition from a founder who does all the sales to a scalable sales team is really, really hard and many ventures fail at this transition. It is equally true for the brilliant developer who has to migrate to becoming a leader of managers. Ventures fail at this transition for two reasons – too much process and too little process. Mark Suster writes very well about this trade-off/dilemma. For more on building “age appropriate process”, see this post from StartUp 101.
7. The consumerization of software primarily impacts the UI, but don’t mistake that for only a surface change. The new style of user interface – one click leads to another, no training needed, end users get results very, very quickly and that motivates them to learn the more complex functions – is fundamentally different from traditional enterprise software. You cannot use freemium strategies without this type of user experience (and freemium is the first fundamental change to the cost of customer acquisition). Nor should you think of the UI as a pretty layer on old software. That is just lipstick on a pig.
The architecture has to enable this type of user interface for all types of users, including developers, administrators, managers, partners and so on. These users require complex, feature-rich systems. But they also now demand the types of user interfaces they experience online with Google, Facebook and Twitter. This is where some foundational technology around adaptive case management, real time/event driven, open data/semantic web and loosely coupled web services are starting to have an impact.
8. SaaS reduces your sales cost but also means that VC is needed. SaaS transfers risk from the buyer to the seller. In the end, SaaS benefits both buyers and sellers. Sellers get a lower cost of sale/shorter sales cycle and better revenue visibility. But the enterprise software bootstrapping past was based on upfront license fees where the customer took the financing risk. So VCs will need to invest. Given the successful track record of SaaS ventures (as tracked by SaaS Insights), VCs are not holding back.
9. Freemium is the only new marketing tool that is proven to accelerate market entry since God invented sales people. Lincoln Murphy is the best source for specific freemium techniques, but the basics are easy to understand. You use a free version to entice the user to eventually try the paid version. If that free version also generates viral growth (it is communication related) and if the free users generate data that serves the paid users, you have a great formula for success.
You are trading the cost of push sales (expensive folks with Rolex watches, the cost never goes down) for the cost of system infrastructure (Amazon Web Services or equivalent, constantly falling in obeisance to Moore’s Law). When you reach enterprise scale you will still need sales executives to negotiate with the CIO’s team, but you will be doing that from a base of traction within the customer. Freemium helps at the critical market entry phase when ventures often fail. The case study to watch is Yammer.
10. Remember the other 80/20 rule: 80% of enterprise IT budgets just “keep the lights on;” Only 20% goes to new stuff. I learned this in the technology nuclear winter in 2002, when a 20% cut in IT budgets meant that no (zero, nada) new projects were approved. If you can show how to reduce that 80%, you get a better shot at the 20%. That 80% market is a replacement market. You need to know what cost you are replacing. The incumbents are looking at the 20% budget as well and they have the inside track. You have to attack the 80% to make it big.
The good news is that CIOs (and their bosses, the CFO and CEO) are increasingly asking why the company spends 80% on technology that does not improve competitive advantage. This has benefited outsourcing (if it is non-core, outsource it) but also enables disruptive technology to get a serious hearing in the corner office.
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