At Scale we focus our investing on enterprise software companies. Unpacking that one step:
Enterprise (B2B) = non-consumer (B2C)
Software = non-hardware
Scale Partner, Rory O Driscoll, wrote a blog post last year explaining that Scale uses the buyers of technology to divide the landscape, and within enterprise software there are two: the IT buyer and the Line of Business (LOB) buyer. Historically, these have been distinct categories but more and more often we are seeing companies deliberately target the LOB buyer in preference to the IT buyer and articulate that choice as a competitive advantage.
Under the old model, corporate IT departments purchased all goods and services related to technology on behalf of all users and departments. As a result, sales reps were let loose on IT departments, not unlike what I practiced as a sales rep at Oracle and Cloudera. Technology purchases involved everything from the data center to function-specific business applications. Some products were intended for universal consumption – say, the data center infrastructure powering company-wide usage – and some were department specific, such as Netsuite for finance teams and Oracle Siebel CRM for sales teams. Traditional LOB software packages required extensive customization and implementation and consequently were motivated by pains experienced by business units but purchased by corporate IT.
This line has blurred and we think several trends are prompting purchasing decisions to move to the business buyer:
Time to Insight: Today, the goal for many technology startups is to get insights into the hands of the business users quickly and to improve consumption of data, whether it be mobile application crash reports (Crittercism) or indications that a project running on Amazon Web Services may be running over-budget (CloudHealth). The goal for modern software companies is different than it has been historically and is more focused on abstracting the technicalities and details and putting design and agility first. Abstraction allows for users to be less familiar with the technology and entirely divorced from implementation cycles, but still extract value quickly. Some think of this as the consumerization of IT.
The Spectacular Rise of Software Delivery -aaS: Software is moving to the cloud and, as a result, the delivery model is moving from packaged software to consumption as-a-service (-aaS). IT no longer has to install the software, nor do they have to operate and monitor on-premise. Employees and teams can now deploy a system without explicit approval from IT because software vendors commit to operating their product and delivering an always-on service directly to the end-users. LOB users can directly consume software without help from IT. The new delivery model has positives (a new source for innovation) and negatives (raises concerns about security and control, new challenges of building multi-tenancy) but in either case it removes IT as a gatekeeper. In some case, this move to the cloud is akin to outsourcing core responsibilities that were once owned by IT.
Critical Mass: Freemium business models (those practiced by Evernote, Box) have become a well-adopted sales strategy. Freemium was once unthinkable in corporate IT where security and governance were top of mind. That governance focus has not changed at the IT level but start-ups are making their tools freely available to individuals and teams, in hopes that when adoption takes off department-wide, revenue will follow. This is especially true in developer communities, with software like Slack or languages like node.js and Swift.
Self-Service: For new software vendors the easier path to market is with a business model that minimizes sales touch-points and puts the process in the hands of the end-user. SaaS has enabled this, monthly payment by credit card has reduced friction, online software downloads have expedited the time to value, and open source downloads have created an inexpensive lead generation channel. Startups never used to post pricing pages on their websites but this is changing; companies want to supply end-users with the requisite information for making a final decision.
Chief Data Officer / Chief Revenue Officer: Corporate IT has always been an enabler by using technology to allow the business to be more efficient and competitive and to make employees more effective and productive. With the rise of the CDO and CRO, internal data is being seen as a competitive advantage. These executives have a clear understanding of business drivers and a technical knowledge of the data assets at the company. When start-ups can articulate tools that will reduce churn, improve data analysis across disparate data sets for a more holistic business view, or real-time insights, that becomes a business imperative, worthy of CDO or CRO attention.
In this era of IT becoming consumerized and less centralized, the IT department becomes only the enabler and not the decision-maker, responding to requests from the business, instead of the reverse. Ultimately, start-ups are finding that their message resonates more clearly with teams looking for results from their data, and these individuals double as their internal champion to help close the deal.