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The emerging market for mobile-powered enterprise rainmakers July 31, 2014

Posted by bernardlunn in Enterprise Web 2.0, internet of things, Salestech.
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Mobile is clearly a big disruptive force in technology, but what markets will it disrupt and how?

Although most of us already have smartphones (in the West), a lot of what we do on those smartphones, such as surfing and email, is like talking heads on early TV. What are the mobile-native use cases that will disrupt major markets?

 

An early mobile-native use case made the headlines when Facebook acquired WhatsApp; this was mobile messaging replacing a lot of emails and browser based social networking. Facebook has spent $19bn to declare this “game over”. They may be right (I don’t think they are, but that’s another story), but entrepreneurs certainly want to go after markets where they don’t face a tough, agile behemoth like Facebook.

 

Fortunately there are still plenty of other mobile opportunities where you don’t need to deal with Facebook as a competitor. One of these “blue ocean” opportunities is “enabling enterprise rainmakers”. Outside Sales is one example of enterprise rainmakers; they are critical to making the transition from brilliant product to great company. These folks tend to not follow rigid processes; they innovate every day, using Big Data and Social Media to figure out what to do next. The good ones spend most of their time out of the office, so they live on their mobile devices.

 

One of the most interesting companies in this space is Clari. They were still in stealth mode when I was reviewing Salestech innovators here and here on ReadWrite. Since that time they raised a $20m Series B and are clearly on a roll and the market they are in is hot. Within days of Clari’s funding announcement was the news that Salesforce had snapped up RelateIQ and the CEO of Clari was writing a blog post entitled Did RelateIQ Sell to Salesforce Too Soon?

 

For RelateIQ, the answer was no, their timing was good. I am sure they could see Clari coming in their rearview mirror. In Enterprise-land, the second best technology with the best distribution often wins and in the CRM market, Salesforce has distribution nailed.

 

My assumption when I first saw Clari was that CRM was simply their market entry strategy to a much broader market of enterprise rainmakers who make a big difference mainly because they spend more time away from their desk than at their desk.

 

My work is teaching sales organizations the forgotten art of thought-leadership selling, which is another way of saying teaching how to be an enterprise rainmaker. This is an outside sales world. This world is not interesting to CRM vendors because the unit numbers are tiny. One rainmaker may transform the fortunes of a start-up but how many rainmakers are there and does it matter what CRM system they use?

 

The unit numbers today are at the intersection of Marketing Automation and Inside Sales, which is growing according to this expert on inside sales writing in Forbes:

 

“Over the past three years, inside sales grew at a fifteen times higher rate (7.5% versus .5% annually) over outside sales, to the tune of 800,000 new jobs.”

 

Inside Sales is all about big scalable processes, the world of CRM, Marketing Automation and Call Centers. If you price per seat (as most CRM vendors do), Inside Sales is much more interesting than Outside Sales.

 

Inside Sales is not really a mobile play; these folks work in the office at big screens.

 

However Outside Sales are only one example of Enterprise Rainmaker. Think of M&A bankers and VCs. Or think of the senior executives guiding the company; the best ones are out talking to employees, customers, partners and investors.

 

It might be better to call all these folks “difference-makers”. They are the ones who make a difference to your business. It is the rainmakers who do their work outside the office who will drive this. They can choose their own tools because they are rainmakers. They choose mobile tools because they do most of their work outside their office.

 

These rainmakers do not work alone. This is where Mobile intersects with Big Data/Data Science and becomes an enterprise story. The rainmakers are out there interacting with people in the market, but they are in touch with support teams “back at base”. In the case of outside sales people, they maybe working with a sales manager who can provide “just in time coaching” because the manager can see precisely where they are in a sales cycle and when they are available to talk after a meeting. Or they may work with sales operations folks, who rustle up the precise support they need at that point in time (such as collateral, data, demo, contact).

 

Clari has this nailed for sales teams. However I want to explore the broader market opportunity beyond sales teams.

 

The concept of a point-person with a back-up team is like a surgeon who is supported by nurses, anesthetists and others. The same is true for M&A bankers and VCs, who have analysts crunching data and assistants making contact requests happen.

 

These rainmakers and their backup teams are the key enterprise “resource”, so it is possible to think of these systems as the next generation of ERP.

 

The concept of enterprise rainmaker goes much further than today’s well-paid enterprise professionals. This is where the market intersects with other disruptions such as Internet of Things and Quantified Self.

 

This is more speculative. The actual implementations are not yet visible (I would love to hear from entrepreneurs working in this area).

 

In Healthcare, think of the market of personal trainers, nurses, caregivers, emergency response workers and physiotherapists who come to your home. Let’s call them health-makers. The market is strong due to the demographics of ageing populations.

 

The health-makers back-up team is critical. The health-makers can assess the patient using good old-fashioned analog tools known as the four senses (eyes, ears, smell, touch). This old-fashioned “data” can be augmented by data from devices attached to the patient (“quantified self”) and analyzed on the spot by experts across the globe; The back-up team has access to Big Data to compare this patient with millions of similar patients. This will be real time healthcare in action, not waiting weeks for results and another appointment. This will happen first in markets where the regulation allows skilled practitioners such as nurses to perform tasks that today can only be done by doctors (who are too important to come to you unless you are really rich).

 

The Health-Maker opportunity is much bigger on a user unit basis than Enterprise Rainmakers. It may also disrupt one of the biggest markets out there – Healthcare. However there may be an even bigger market. We all need help getting our bodies fixed (aka Healthcare) but what about our homes and all the stuff in our homes? As our homes become more wired and digitized with sensors sending data, the person who comes to fix something may come equipped with a smartphone linked back to Big Data systems – and may come before you have even noticed the problem. This will create a whole new generation of services and, now that service is the new marketing, create significant new revenues for many consumer products companies.

 

These front line people will become the new rainmakers. They are the brand experience as far as consumers are concerned. How well empowered they are by data will be key to enterprise competitiveness in future.

 

Enabling these new kinds of services will not need great mobile user experiences that are linked to cloud-based data systems and applications. This will need a new generation of application platforms that deliver context aware data just in time to the front line “rainmaker”.

Thought leadership selling for enterprise software creates a qualitative feedback loop that can get marketing & product management on the same page. May 5, 2014

Posted by bernardlunn in Blogging, Enterprise Sales, Enterprise Web 2.0, SAAS, start-ups.
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There are two core jobs in enterprise software; you either code it or you sell it.  All the other jobs, vital as they are, facilitate those two core tasks. In the great companies there is a culture that synthesizes the best of the coding world and the best of the sales world. In those companies both techies and hustlers respect each other and know that they depend on each other like mountain climbers roped together.

Sadly that kind of mutual respect culture is all too rare. For the first generation of enterprise software, the sales guys ruled and they often abused that privilege. It is therefore no surprise that in the next generation, characterized by SaaS and consumerization, many technical founders sought to write the sales guys out of the script.

In the consumer world, there is no selling (door to door salesmen are only in history books), there is marketing and that is tightly integrated with the product (lots of AB testing to find out what gets consumers to hit the buy button).

Marketing has become a science. The creative folks and their hustlers that we watch with such amusement on MadMen have been banished to the history books along with door to door salesmen. We now have a perfect quantitative feedback loop of Analytics feeding into Marketing Automation feeding back into product feeding back into Analytics….

That would be OK if selling to the enterprise one user at a time – the consumerization story – was all that was needed. It is a venture lifestage issue. You get early traction, the foot in the door, one user at a time using Freemium. To grow your share of budget you need at some stage to engage with the people who manage these enterprises (or sell to an acquirer who can do this but that is a very limited pool of acquirers).

So what you need is a qualitative feedback loop integrated with this quantitative feedback loop. You need to hear what people are thinking and feeling about your product, what would entice them to buy more. When you find this out you need to quickly integrate this into your product and your marketing; this has to be an agile feedback loop. For this you need humans who can understand the nuances of the enterprise you are selling to, the geography and the trend line dynamics in the niche you are focused on. They also need to be credible inside your company so that the voice of the customer is heard.

Thought leadership selling is a forgotten art. I think of it simply as industry expert bloggers who sell or salesmen who blog credibly about the industry. This Forbes article outlines it well, the key quote is here:

“Take Salesforce.com as an example. This was an organization that took cloud-based software-as-a-service for customer relationships into the mainstream marketplace. There are several elements to its success, namely a strong product, but it also has an army of thought leaders who specialize in app development, sales lead development, sales management, etc. that helps customers do their jobs better. Salesforce’s model, driven by product success and thought leaders, has led to a familiarity with “the cloud” and a willingness to accept it in a corporate environment. These achievements not only helped the cloud computing industry with adoption rates, but helped make Salesforce a leader in the cloud-based CRM space.”

I think of this simply as industry expert bloggers who sell or salesmen who blog credibly about the industry. It is no longer OK for customers to read interesting blogs on your site and then meet sales people who cannot continue the conversation because they follow the old fashioned scripted model of selling. This is particularly true when crossing the chasm through the bowling alley of niche markets. Of course in the early days, the founders do this and in very late days you can hire teams of sales people who follow a more scripted approach, but you need thought leadership selling to make the tough transition from the early days of founder led selling to mature enterprise sales processes.

Next post in series 

How to manage an enterprise sales team in the era of bring your own everything May 2, 2014

Posted by bernardlunn in Deal-making, Enterprise Sales, Enterprise Web 2.0, social networks.
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This is # 9 in a serialized book called Enterprise Sales for the Digital Age, delivered here as 11 blog posts. You can get value from each in isolation, but if you really need to understand enterprise sales, reading the whole series is worthwhile.   You can buy an improved version, neatly printed and bound, for $6 from Amazon.  

Note: a version of this post has already been published on ReadWrite.

This applies to outside sales, particularly the rain-makers who get the early customers for startups.

Bring Your Own Device (BYOD) is now a well understood management issue. What mobile device a salesman uses is not that tough an issue to manage now that HTML5 has matured to a level where it is perfectly acceptable for most business apps. Its the app that matters, not the device.

However management is only just starting to wrestle with a world of “bring your own everything” including:

1. Bring your own social networks.You want to hire sales guys who “bring their own rolodex.” and technically speaking, the social networks such as Facebook, LinkedIn, and Twitter, are their rolodexes. This is not the same as just having a lot of Friends or Followers or Connections. What matters is the depth and quality of those relationships. Sales is all about “what have you done for me, or somebody like me that I can relate to, recently?” It is much better to have 10 who say “you have done something for me recently” than 100 who say “I vaguely recall interacting with that guy”. The key point here is that these are personal relationships, where the relationship data is stored in the cloud service and belongs to the individual, not corporate data in a CRM system that is used by the hired salesman while they are on the corporate pay roll. There is a change in the individual relationship to their employer that is going on here. Data is power and that data power is shifting to the individual. We can cheer the empowerement of the individual while also recognizing that this creates a management challenge which is quite legitimate.

2. Bring your own contact manager. LinkedIn has a special role in business social networking because it is the self-updating rolodex of business, managing content on people independent of their company affiliation. The individual owns and controls the data, not the employer.

3. Bring your own sales methodology. In ye olden days, the company told sales people what sales methodology to use. It was part of “the way we do things around here”. Onboarding included training in the company standard sales methodology. There are lots of these sales methodology and most of them are good. Famous ones are Miller Heiman, SPIN and Target Account Selling (TAS). However, will your startup be defined by your sales methodology? Or will you reject a sales star who made the key sales for a competitor because she prefers SPIN to your company standard? No, I did not think so.

4. Bring your own sales productivity tools and apps. This brings us back to mobile. It does not matter too much to the company whether a sales guy uses iPhone, Android, Windows or even Blackberry. However, what apps they use on that device has a bigger impact on management, because it relates to control over data and integration. The good sales guys will come in with their apps on phones and tablets hooked up to the networks and services they use in the cloud. They are onboard and productive on day one.

 

5. Bring your own content. The thought-leadership sales guys who are rain-makers for startups could be described as “bloggers who sell” or, if you prefer, “sales guys who blog”. They will of course use the content created by the company, but when prospects can self-educate online before meeting anybody from the company, there has to be a reason why the prospect wants to meet that sales person (as opposed to meeting the CEO or CTO or CMO who is doing the company blogging). This is another management headache or tremendous opportunity depending on how you deal with it. 

The mission you are giving these sales guys is tough – break into a new market for a relatively unknown startup and do it fast and do it big. You cannot also say “oh, and by the way, you also have to use all the systems, processes and tools we give you whether you like them or not”. Imagine telling a sales guy who has used one methodology and tool set successfully for years that she must switch to your company standard. Do you want her to do that – or generate sales quickly, put you on the map in a new market and make $ millions for your company?

This does change the balance of power between sales guys and their employer and creates a management headache. Luckily there are new solutions appearing to crack this problem.

New ventures focussed on this challenge include Nimble, RelateIQ, ClearSlide, Yesware, Tylr Mobile, Social Pandas and Selligy. These “sales productivity” ventures focus on making sales people more productive as opposed to traditional CRM which made their managers more productive. They focus on two types of solution:

 

  1. Integration at the mobile device level. Outside sales people should be – outside. Any system that is not mobile first, that does not allow sales people to do most of their work when they are out of the office, is a productivity drain. A sales person who is in the office too much is not a good sign. Mobile is the obvious answer. Mobile is also key to the integration of all those single feature cloud apps. Thanks to APIs, it is relatively easy to integrate these at the mobile app level. This is where the types of services that sales people use every day to get their job done – LinkedIn, email, presentations, CRM, maps, online meeting systems etc – can be integrated and presented in a single user experience.2. Digital exhaust to replace sales data entry. If the sales guys are in the office filling in reports for management, that is a management and systems failure. You want them meeting customers and prospects, that is when they are adding value. The great sales guys can write really short reports such as “beat quota by x% this month/quarter”. The long reports are all about reasons why the sales guy did not hit the numbers. Yet management does need data. The mobile apps do enable quick simple reporting while in between meetings (in the elevator, on a train, getting coffee). More strategically interesting is the trend towards auto aggregation of what may become known as “sales big data”. Like all big data, this is aggregated automatically from “digital exhaust”, in this case from what the sales guys are doing all day on their mobile devices. This answers questions like:1. Who did you meet?
    2. Where (in the cloud or F2F?)
    3. For how long?
    4. How engaged was the customer?The first three questions answer the most basic management concern whch is “are the sales guys doing their job, are they working hard?”. Much better to get this reported automatically rather than asking the sales guys to spend time doing this, knowing that they are incentivized to not tell you the truth. The current system of CRM reporting is doubly broken – it wastes valuable time and delivers suspect data. 

    However the really valuable data comes if you can answer the last question. This could help companies to do consistently what really great sales people do, which is to qualify prospects with great care and discipline. We all know that is what we should do, but very, very few sales people do it at all well. We think that sales is all about hard work, persistence, determination and all those other good Protestant work ethics. So we drive relentlessly on, calling that prospect for the umpteenth time.

The best sales guys wait until they can see that the customer’s need is real and urgent. They “wait until you hear the screams.”

One way of checking for pain and urgency is how much effort the prospect puts into the relationship. You need to see some equality of effort. If you call five times before the prospect returns your call that is not equality. If you send reams of information and give multiple presentations but the prospect won’t fill in a requirements questionnaire, then that is not equality of effort. With every call you want the prospect to DO something. If this does not happen then the screams are not loud enough and you should move onto your next opportunity.

Sales big data could start to answer questions like this at the customer level, by aggregating data such as:

  • How many hours has this customer spent talking to us?

  • Do they open mails from us and how quickly?

  • Are they clicking through our slides during webinars or is their attention engaged elsewhere?

  • How many emails did they send us?

It is still really early days in the market for sales productivity tools, but the need is there, so it is likely to happen quickly. In the era of “bring your own everything” our sales management systems and tools need to evolve. We need tools that primarily focus on making the front-line sales folks more productive while incidentally also allowing better management oversight.

Next post in series

Where Do Niche Enterprise Software Companies Go To Retire? October 10, 2012

Posted by bernardlunn in capital markets, Enterprise Sales, Enterprise Web 2.0, SAAS.
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Many years ago I worked for Misys, after they acquired a company that I worked for. The founder, Kevin Lomax had simply taken the Hanson Trust model (for industrial companies) and applied it to software. Misys was a good exit option for the founding management team and Misys had a simple model that worked very well for a long time. The basic model worked as follows:

1. Buy a mature enterprise software company in a niche market. Mature meant lots of Maintenance Fees, which has good revenue visibility, almost SaaS like. I worked at Kapiti when Misys acquired the company. This was Misys’s first foray into banking software, their initial market was Insurance.

2. Buy other companies in the same niche, become the dominant vendor and get economies of scale. Fairly soon after buying Kapiti, Misys acquired ACT (a public company that had a couple of bad quarters and was available at a good price). ACT owned Kapiti’s two major competitors – Midas and Kindle. Overnight the instructions changed from “beat the crap out of those guys” to “compete, sort of, but do it nicely and for goodness sake don’t get into a price war”.

3. Then buy lots of young and more technically leading edge companies and sell that into the market that you already dominate.

So, what is wrong with this picture? Today, Misys is a shadow of its former glory. It was nearly bought by Temenos and now is a bit vulnerable after they walked away from the deal. In 1996, when Misys owned  Midas, Kapiti, and Kindle (representing the number 1, 2 and 3 by market share), a tiny upstart run by a great entrepreneur called George Koukis decided that Misys was vulnerable and could be taken on! That was some crazy strategy, but he was right. His company was Temenos. The fire had gone from the belly of the Misys folks, but it burned fiercely at Temenos. (Watch George Koukis, a Greek, talk straight about the Greek Crisis, a refreshing entrepreneurial take on a tired old story).

The big question for all the holding companies that emulated Misys and all the Private Equity buyouts and roll-ups is how do you keep that fire in the belly? How do you go for growth when you already dominate your niche? The basic strategy is to move into adjacent niches. This requires a start-up/entrepreneurial mind-set, the kind of skills that the company had in its founding days and then lost.

Misys would have been fine had they not had a really driven entrepreneur like George Koukis coming after them. There was no disruptive technology or new market to worry about. Temenos had no tail winds to help them. The same is not true today. The legacy companies are being attacked by lots of Koukis like entrepreneurs and these entrepreneurs have the huge tail wind of working with native cloud technology. The old-software company’s retirement home is not as serene as it used to be.

Is Workday The Breakout Enterprise Software Company Of The Decade? October 8, 2012

Posted by bernardlunn in capital markets, Enterprise Sales, Enterprise Web 2.0, SAAS.
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It has been a boring decade in enterprise software.

Where is the big enterprise software winner of the last decade? Where is the Oracle or SAP of the last decade? Or less ambitiously, where is the TIBCO, Cognos or Hyperion of the last decade? So far the only one to make it into the big leagues is Salesforce.com and it is unclear if they will actually make the breakout from their CRM niche to something bigger.

Workday has the ambition, funding, founder experience, breadth of offering to be this winner. This one will be interesting to watch, the SaaS Index is getting a new bellwether stock to join $CRM very soon.

Enterprise Software: Returning To A Market That Has Been In A Coma For A Decade September 5, 2012

Posted by bernardlunn in Enterprise Sales, Enterprise Web 2.0, SAAS, start-ups.
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About 10 years ago, I wrote a post called Enterprise Software R.I.P. The venue that I published in has long since disappeared into the digital dustbin, but my trusted laptop files retrieved it, so it is published below. I decided to revisit this post because I have come to the conclusion that enterprise software did not die, it just went into a coma and it is now coming out of that coma.

To a casual observer, there is not a lot of difference between coma and death. First let me say what I mean by coma/death in this context. Of course there is still lots of enterprise software and a few huge vendors doing very well and lots of small niche vendors operating in the cracks between those behemoths. But where is the Oracle or SAP of the last decade? Or even the BEA or Cognos or TIBCO of the last decade? Where is the start-up that broke into the mainstream and became a multi-$billion success story? I am referring to the death of innovation in enterprise software. This decade has not been conducive to enterprise software ventures. It is no wonder that most VCs ignored enterprise software during this decade.

Ten years ago I sensed that this was happening. It was disturbing to me because enterprise software was the world that I understood so well. I felt like the Polish Cavalry in the Second World War. The Polish Cavalry was renowned as the best in the world. They could shoot with great accuracy at full gallop and turn on a dime, nobody could match them. None of that helped them when the Nazi dive bombers and tanks rolled into Poland in 1939. I had mastered a game, but the game had changed.

So I set out to understand the consumer web. A decade later I am not a master of that game, but I understand it “enough to be dangerous”. That helps now that I am coming back to enterprise software because the consumerization of software is a big part of the renaissance of enterprise software. However it is only one part of that renaissance. Enterprises are more than the sum of their parts, they cannot simply empower every employee with consumer web type tools and hope they all pull together to grow the profits. That is why I remain sceptical of the hype around Enterprise 2.0 tools, all those “Facebook tools within the enterprise” ventures. These are “shiny objects” that make Gen Y employees happy and can have an incremental impact on productivity, but they are hardly game-changing in the way that say relational databases and ERP were game-changing in their day. Sure it helps to have better user interfaces that encourage collaboration. But there is a lot more at stake for enterprises and therefore for the employees. Enterprises face a perfect storm of three tsunamis hitting at the same time – Digitization, Globalization and the Debt Crisis. This is an existential crisis for large companies, their very reason for existence is being called into question. Business-as-usual won’t help them navigate this perfect storm. Therefore software-as-usual won’t help them navigate this perfect storm. That is why there is a huge opportunity again in enterprise software.

But I am “getting too far over my skis”. I want to return to the R.I.P post from ten years ago. There was a lot that I got right. I could see the dismal grind of consolidation. However some of my gloom was due to the terrible, but transitory, backwash from the end of the technology nuclear winter. These were the days when nobody was buying any software, innovation was dead, the only answer was to get into real estate speculation. Thankfully I resisted that temptation, it ended in a bust worse than the Dot Com bust, one that we are still living through. In hindsight the biggest thing I got wrong was:

The “IP everywhere” rollout is exactly that, an implementation of proven technology by big vendors”.

That was wrong because the “IP everywhere rollout” fundamentally changes the rules of the game. The IP everywhere rollout makes transaction costs cheaper externally than internally. This is the practical realization of Coase’s Theorem. Coase, an economist writing in the 1930s, posited that firms grew big based on the fact that transaction costs were lower internally than externally. The Internet makes external transactions dramatically cheaper; this is the “frictionless commerce” that is now becoming reality. This challenges the very basic idea that scale is always an advantage. All those roll-ups, acquisitions and mergers in the industrial age were based on the theory of economies of scale; in Coase terms they were based on the theory that transaction costs were usually cheaper internally than externally. This goes to the very heart of what makes an enterprise big, why it needs to be big to win. This is as far from business-as-usual as you can get.

I also lost the plot a bit here as well:

The return of the single vendor stack. IBM, Sun and HP are putting together complete solution stacks that look suspiciously like the pre-Wintel proprietary solution stacks provided by hardware vendors such as IBM, DEC, Data General, Olivetti, Burroughs, Univac, Wang and other dinosaurs that once ruled the earth. “

I had that both right and wrong. Yes, the vendor stacks forced consolidation. I got that bit right. But of course this is no different from the pre-Wintel proprietary solution stacks and they all disappeared into the dustbin of history; only IBM survived and thrived, DEC, Data General, Olivetti, Burroughs, Univac and Wang are all history. I saw that but I did not see how it would end. The answer is that when IP everywhere rolled out enough, the proprietary solution stacks started to become threatened. That is happening now. Sun has already fallen, it’s great technology is now one part of the Oracle stack. HP is a seriously troubled company. Again, only IBM has emerged stronger from this wave of change.

Perhaps the most fundamental mistake I made was in my definition:

First a definition; enterprise software is the core, mission critical stuff that manages transactions, accounting and management information.”

If you define enterprise software that way then certainly it is “game over”, but that is only a definition of the first wave of enterprise software. The next wave, enabled by IP Everywhere will tackle much more critical issues than basic administrative functions. These critical issues will be the subject of anther post but they will address the existential question for enterprises which is how to grow when economies of scale is no longer the driver of growth.

I also mistook the fact that real time enterprise was only in the “slough of despond” that always comes after a period of hype when I wrote that:

real time enterprise” is a fancy name for what the industry is gradually evolving towards

Real time enterprise needed to wait until the IP Everywhere rollout was more complete. For example, now that about 50% of the 7 billion people on the planet have mobile phones, you have to operate real time to thrive. The IP Everywhere rollout also enables real time enterprise solutions to be implemented practically.

—————————————-

Enterprise Software R.I.P

(Note: this was written late in 2002 and is copied here unchanged).

This is a receding Tsunami. Thousands of companies rode this one to fortune, but it is now crashing on the beach and the backwash is pulling a lot of companies underwater.

We are still in the early stages of the enterprise software consolidation and the most sensible option is to sell out for the best price you can get. Then you can find another wave that is growing. Or you can get out of the industry as thousands of talented, experienced executives have done in the last few years. For those who love the industry but hate the idea of working for one of the gorillas, this article highlights how to find a reasonably protected niche market

First a definition; enterprise software is the core, mission critical stuff that manages transactions, accounting and management information. The industry has been doing this for decades and there really are only so many ways you can slice the cake.

Of course it is a huge industry and is not going away. The issue is whether this is an environment conducive to start-ups. Look at the things that customers are now focused on such as data center consolidation and integration. These require big companies. The “IP everywhere” rollout is exactly that, an implementation of proven technology by big vendors.

Attempts to hustle up big new growth waves within enterprise software have failed. Wireless is a simple another delivery option and “real time enterprise” is a fancy name for what the industry is gradually evolving towards. These are add-ons to existing products from big companies.

What is driving this consolidation?

  • The proximate cause is the after effects of the bubble bursting. Massive over-investment and the dramatic drop off in demand puts the buyer in control.

  • The buyer has always hated the traditional enterprise software model; too many small vendors blaming each other for projects that don’t deliver business results. In a buyer’s market, they get what they have wanted for a long time.

  • Investors demand the earnings visibility that comes from a recurring revenue model. When customers and investors both demand the same thing you can be pretty confident that it will happen.

  • The return of the single vendor stack. IBM, Sun and HP are putting together complete solution stacks that look suspiciously like the pre-Wintel proprietary solution stacks provided by hardware vendors such as IBM, DEC, Data General, Olivetti, Burroughs, Univac, Wang and other dinosaurs that once ruled the earth.

  • ASPs with solutions engineered from the ground up for the Net, such as SalesForce.Com and Intranets.com are getting real traction and proving that it is possible to deliver real solutions over the Net for a monthly fee.

So will all the customers simply plug into a few giant Con Edison style utilities? Is our only option to work for/invest in these utilities? Thankfully the answer is an emphatic no. The utility analogy can be stretched too far. IT has a far bigger impact on a company’s profitability than electricity and there are a lot more variables. So how can smaller independent companies prosper in this new world?

  • Leverage the stack for your own high growth niche. Offer the total solution on-line for a monthly fee. This reduces the buyer’s risk and thus enables start-ups to get that critical early traction. The good news is that it is now much easier and cheaper to put together a total solution from a mix of outsourced data centers, open source frameworks and offshore developers. All you have to do is find an emerging growth market.

  • Operate right at the top of the stack where you are dealing directly with end users (aka a vertical market solutions focus). Look for business sectors that are growing fast but that are small enough today to fall below the radar screen of the gorillas.

  • Web Services based “features”. Experienced venture builders look at most new ventures and say, “that is not a product, it is simply a feature”. The best that can happen to these “companies” is that they get sold for R&D value. It is possible – but not yet proven – that Web Services will enable small companies to thrive by offering these features on a pay as you need basis over the Web.

  • Mine the backwash. There is a lot of money in maintaining old systems, catering to the conservative customers and forgotten niche markets. These forgotten markets last much longer than you would think from listening to industry analysts. This is low on the glamour stakes but if you are in business to make money it is worth remembering the old saying “there’s brass in that old muck.”

  • Private label commodity providers. This is another low glamour business, suitable for low cost operators. You sell your product through other solutions providers without your brand being visible. Of course you may eventually pull off the “Intel inside” trick and move up the stack, but even pure commodity players can make good money if the market is big enough and you focus on efficiency and being the lowest cost provider. You will need to bundle excellent support and show that your TCO is lower even than open source.

This a good time to take stock and get ready for the recovery with a new positioning. Markets will recover and IT will remain central to business. But don’t expect it to be like it was before. Prepare for dramatic change and find where you can add the most value.

Enterprise Software: The tough transition from founder led sales to a scalable, professional sales team August 27, 2012

Posted by bernardlunn in Enterprise Sales, Enterprise Web 2.0.
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You need three reference accounts to be a credible vendor:

Once means nothing

Twice is coincidence

Three times is a trend

These first three deals are very, very tough. Customers don’t want to take the risk of being an early customer of a startup. The only person who can close these first three deals is a founder. That is why successful enterprise software ventures almost always have a balanced founding team of two. One is a brilliant techie who creates the product. The other is a smart, driven,  sales oriented person – the “sales co-founder”. Attempts to hire somebody to make these first three deals happen usually fail. You cannot outsource the job.

These first three deals need to evolve with the product. The two founders, the sales guy and the techie, need to work incredibly closely to make these deals happen. The product does not really exist until these three reference implementations are complete.

Each of these three deals is very tough to pull off. Most customers prefer to wait until the product is proven in the market – they want to wait until you have those three reference accounts. You can be justified in having a big high five celebration on each closing. However the next transition is often even tougher. Mostly it is tougher because founders don’t see this one coming. The first three deals are so tough and so all consuming. There are four temptations when you reach this point, each with their own peril:

1. Just keep working the same way. This is very tempting for the sales co-founder. Why mess with success? You and your techie co-founder are working as a great team. You have a pipeline. You are enjoying this. The propects want to keep working with the founders. There is only one problem. You can never build a big business this way. Maybe you are OK with that, but your window of opportunity can close very fast. Your market wants a winner to emerge. There is a gap that needs filling. That is why you succeeded in getting those first three deals. The market wants your company to become a big viable vendor. So, while they love talking to the co-founders, they love your experience, insight and energy, they also want you to build a scalable organisation. If you don’t, the market will annoint another winner and you will find doors being closed.

2. Hire a professional sales guy to replace the sales co-founder. The founder can make selling the product sound so easy. You have a great product, three happy reference accounts and a window of opportunity into a big new market. Surely you can find somebody to replace you? Sadly, many ventures fail totally at this stage. Those that make it past this phase do so thanks to the drive and will of the founders after burning through many of these professional sales folks in an expensive process that is full of fights and bitterness. Who do you hire for this key role? It is tempting to go for the professional from a big company. The candidates will tell you why they are quite comfortable making the transition to a startup, why that is what they have always wanted to do. Sadly many of them are refugees from big company sales teams simply because they were not good sales people. No matter how many times these professionals deny it, they will expect your company to have all the marketing bells and whistles of a big, mature vendor. They will also quickly get uncomfortable with the constant pivots and tactical flexibility. This is an essential feature of the early days of a startup. The sales co-founder can manage this easily as they are an owner and they have a close working relationship with the technical co-founder. However this is really difficult for the newly-arrived sales professional to pull off. The customers keep asking for the sales co-founder. The technical team won’t make changes based on what the newly-arrived sales professional asks for. The organizational anti-bodies rush to kill this intruder. The founders refuse to accept that their scrappy, agile, fun startup can have these organizational anti-bodies. So the newly-arrived sales professional is fired; it must be their fault. I have seen enterprise software ventures burn through three or more sales professionals in this way. This takes many years, costs a lot of money and often means the company misses the big window of opportunity.

3. Hire an entrepreneur-sales type. Knowing about the perils of bringing in the professional sales type, many founders aim to hire a clone of the sales co-founder. That can sometimes work OK, better than the sales professional from Bigco.  But this just postpones the time when the venture has to implement scalable sales processes. The more immediate problem is that most people don’t like being clones. This is particularly true of the entrepreneurial sales types. This route often leads to big clashes between two strong-willed personalities that each deeply prize their freedom to work things their way.

4. Raise a lot of Venture Capital so that you can hire a top notch sales manager (VP of Sales) who then brings the full sales team on board. This addresses one big issue with both  routes 2 and 3. It is hard to bring on just one sales person as this makes the role of the sales co-founder unclear. The sales co-founder cannot just manage one sales person. But all you are doing is replacing all the problems of hiring a sales person with the same problems but related to hiring a sales manager. It is very hard to accelerate growth in enterprise software using Venture Capital. Hiring a sales manager who brings on a whole team at this stage may simply accelerate the burn rate.

When you pass the gate labelled “3 reference accounts”, get the whole team together for a big celebration. Your venture is now viable, you are “in business”. Then head off for a couple of quiet days to work out how to pass through the next gate labelled “big valuable company”.

Attention Enterprise Cloud and SaaS Vendors: CAPEX is no longer the problem, OPEX is the problem. August 25, 2012

Posted by bernardlunn in Enterprise Sales, Enterprise Web 2.0, SAAS.
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One of the big value propositions for SAAS has been:

– No CAPEX

Pay as you use licensing converts IT from CAPEX to OPEX. That has worked brilliantly, perhaps too brilliantly. While nobody was looking, the CFO’s attention shifted away from CAPEX. This is hard for cash-strapped start-ups to understand, but big companies have ridiculous amounts of cash on their “fortress balance sheets”. They have so much cash that they don’t know what to do with it. They can give it back to shareholders via Dividends and Share Buybacks; that gives a short term boost to the stock price, but it is not what they are paid to do.

They want propositions from vendors to spend that cash to:

  1. improve the profit margin by reducing OPEX. That is a much better way to boost shareholder value than buying back their shares.
  2. generate new revenues. This is why acquisitions are so popular, but shareholders prize organic growth more than acquisition led growth. If you have a credible way to grow revenue organically, you will seriously get the attention of the CXO folks in their corner offices.

Now look at the standard SAAS/Cloud pitch from this corner office:

“you won’t need to spend that plentiful cash but by letting us grow unchecked within our organization we are in danger of letting our OPEX get out of control”.

Your frictionless customer acquisition has become their out of control OPEX spending. The “no CAPEX” pitch was ideal market entry pitch for SaaS and Cloud vendors, but it is no longer the compelling proposition that it used to be.

No CAPEX still works well for two types of customer:

  1. Startups and smaller companies. They are always cash-starved. But as a vendor you have to bet that one or more of these startups will become big. It is incredibly hard to scale a business if all the customers are startups or small.
  2. Operating units within an enterprise. They tend to have minimal external IT budget as they are supposed to get big IT projects approved through the internal IT department via the CIO. That internal process can be expensive, lengthy and political.

Both of these can be excellent market segments for vendors, but this should not be mistaken for an enterprise value proposition.

The great enterprise software startups of the past almost all bootstrapped without Venture Capital funding. They could do this because selling perpetual licenses is wonderful for generating cash. Sure, selling perpetual licenses will lead to problems in the long run – huge pressure to close big deals at the end of every quarter and lack of revenue visibility. For most entrepreneurs this is a bridge that they can cross at a later date. In the early years the three golden rules are 1. Cash Flow, 2. Cash Flow and 3. Cash Flow. The other part of the perpetual license model is the Annual Maintenance Fee. As this is cumulative, it creates revenue visibility as the venture matures. Look at the financials of a mature enterprise software company and you will see a big % of the revenues coming from Annual Maintenance Fees which have similar characteristics to SaaS subscription fees – good revenue visibility and low churn.

Cloud Is OK, But Consumerization Is The Real Disruptive Play In Enterprise Software August 13, 2012

Posted by bernardlunn in Enterprise Sales, Enterprise Web 2.0, SAAS.
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Today’s hype is all about the Cloud, which is a triumph of marketing. Marc Benioff, Founder/CEO of Salesforce.com, is the trailblazing pioneer who executed brilliantly on a marketing blitz with the No Software tag line and image. It was brilliant, but something grated on me. Salesforce.com was still all about software, just software delivered in a different way. “Software is eating the world” as Marc Andreesen puts it. This is the golden age of software. The tag line should be More Software.

What Benioff really meant was:

“you don’t need to install our software on your hardware”.

That does not exactly trip off the tongue. It sounds like branding conceived by an engineer – totally precise and accurate….and quite useless.

Or he could have said:

– No CAPEX.

That is the Pay As You Use Licensing model. Again, this is precise, but useless as marketing. Working out the trade off between monthly payments vs perpetual licensing is Finance 101. Plenty of traditional enterprise software companies offer a monthly payment option and this can help to get a deal “below the radar” of a corporate CAPEX authorisation process; but that is hardly a game-changing revolutionary approach. Many companies, savvy to this move by vendors, require authorization for the full length of the contract (e.g. they multiply the monthly fee by 24 if it is a 2 year term).

Or Benioff could have said:

– No Hardware

Or:

– No Data Center

That would have been more accurate. No Hardware is the simple core of the cloud computing value proposition. Salesforce has been adamant that they will never license their software for use within a customer’s data center. That gives them lifetime value and great revenue visibility. They can maintain that position with customers as they get their initial traction with end users who have zero interest in the hassle of installing software on hardware in data centers. By the time the Salesforce sales guys get to the CIO level, they are already entrenched at the end user level, so they have enough negotiating clout to hold this line. As Salesforce.com has the scale and technology to buy hardware at least as efficiently as their biggest clients this works. This is tougher for startups without any buying clout.

So now we have:

– No CAPEX

+

– No Hardware

Now, lets add Consumerization. Now we can say:

– No Committment

+

– No Documentation

This is more radical. Many enterprise software vendors fail at this step.

No Commitment means users pay monthly and quit any time they want without penalty. When I was editing the SAAS Insights Report, there was one quarter when Salesforce.com was panned by Wall Street analysts because the company had moved from a policy of insisting on at least 12 months commitment, to asking for no commitment. This meant that analyst’s models that forecast future revenues based on contractual committments saw a weaker forecast. If they had bothered to ask their colleagues analysing consumer centric subscription businesses, they would have looked at churn models and cost of customer acquisition and concluded that Salesforce was making the right move. This showed me that conventional Wall Street analysis is often deeply flawed; but that is another story.

No commitment naturally leads into Freemium. The conventional enterprise response to the need to try before you buy is the free trial. This is quite different from freemium, which is free forever with limited functionality. This is a game that large companies can play more easily. For example, I am confident that Google will survive and won’t feel under financial pressure to adversely change the terms of their free Gmail service. A free service still requires me to invest my time; if the vendor goes smash or changes the rules, I lose that investment.

The key to No Commitment is Low Churn. If you get high churn, if users pay for a couple of months and then terminate, your customer acquisition cost will be too high.

Low Churn means that users actually find it useful. Which leads onto to next one:

– No Documentation.

Would you use Gmail if you needed a Manual to get started? Consumerization means really, really user friendly software. You know what to do the moment you see the screen and you can get real value immediately. If you want to become a power user, you can do so gradually. If you want to use related modules, they are loosely coupled but integration is automatic.

Consumerization is the real revolution in enterprise software. Cloud Computing and Pay As You Use Licensing are usefull iterations of the current model. Consumerization is the seismic shift that will:

  1. Dramatically lower the cost of customer acquisition and on-boarding for vendors (and therefore enable lower prices for customers).
  2. Bring the customers and partners directly into the systems and processes on a peer level with internal employees.

The last point is critical. Enterprises have already cut a lot of costs. They won’t stop, cutting costs is like weeding the garden, a job you always have to do. But senior management priority has shifted decisivelty towards revenue generation. Enterprises today are very cash rich and profit margins are at an all time high, but management teams are all struggling to grow the top line.

Online networking is changing how business is done in fundamental ways. The consumerization of software is not only about letting Facebook addicted Gen Y and Z feel more at home at work. Nor is it just about incremental productivity improvements from easier to use software. Consumerized software is about enabling front line employees to connect in real time and in context with customers and partners. Business is evolving from managing hierarchies to managing ecosystems. That requires a radically different type of enterprise software. The revolution in enterprise software that commenced with cloud and SaaS is just getting started. It is this aspect of consumerized enterprise software to add the final one:

– No Walls (between employees and customers).

Today’s enterprise software is a 5 point mantra:

No CAPEX
No Hardware
No Commitment
No Documentation
No Walls

Vendors can choose which of these 5 mantras to focus on. There are trade-offs and some vendors will do well be focussing only on one or two of these mantras. 

How LastMinute.Com Taught Me That The Real Time Web Needs The Real Time Enterprise June 25, 2012

Posted by bernardlunn in Enterprise Web 2.0.
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I had never used LastMinute.com before, but I knew of the concept and I had a perfect use case, so it was time to give it a try. I had to get a flight on short notice and wanted to see if there were any last minute bargains. I started on my iPhone, found a click to call, spoke to a rep who quickly got me a flight that looked like 50% off the list price I was seeing elsewhere. Go for it, I told him, gave my card details etc and after some fluffing around was told:

– the price just went up (about 10%). OK, it was still a bargain, so though I was annoyed I eventually said yes.

– then I was told to pay an additional 2% because I was using Amex, even though that was the card they had taken and confirmed the price was “everything included”. That was the straw that broke the camel’s back and I stopped the transaction.

I went back to my laptop, found WiFi and went to book it online, found the original price, booked it and got email confirmation. I patted myself on the back and went out for the evening, thinking all was OK with my flight.

Wrong!

At checkin, they had no record of my reservation. Went to their ticket counter, to a helpful lady who got LastMinute on the phone. No reservation had been made. My card had been debited and I had confirmation, I had an Order Number from LastMinute. I also had  an Airline Reference Locator. Silly me, I do not know the intricacies of airline reservation systems. What I needed was a Ticket Number. Note to self, store this knowledge in lifehack file.

Here is what seems to have happened:

– Airline sends LastMinute a price.

– Last Minute posts that price to me.

– During the booking process – it is a multi-leg transaction – the price gets changed by the airline

– So the ticket is never issued.

The consumer i.e. me, holds LastMinute responsible. I assume the interface to the Airline was all messed up and probably the Airline (not a major) had old-fashioned systems. But that is LastMinute’s job to manage. I think all the travel sites suffer from some version of this problem. I have seen that at times when flights are cancelled due to weather and everybody scrambles to get on a new flight.

The real time web sounds fun but we cannot live on fun real time tweets. At some stage we have to connect to the real world of enterprise systems and transactional systems that involve money. That interface seems to be horribly broken. Methinks any tech platform that can fix that is going to do very well.