There has been a little bit of new hype recently with posts like “Enterprise Software is Sexy Again” from the CEO of Box.net and “A Re-Birth for Enterprise Software” by Marc Andreesen which suggests that startups can sell software to enterprises. This of course is contrary to what is popularly believed since startups typically are attractive to early adopters, while enterprises are typically the late majority in accordance to Crossing the Chasm.
I do believe that there is a lot of opportunity for startups to sell to enterprises even though classic thinking tells us the contrary.
There are two lessons that I learned recently that suggest that it isn’t crazy for startups to sell to Enterprise: (1) enterprises aren’t as late adopters as is commonly believed, and (2) the cloud offers new opportunities for enterprises to adopt startup technologies with very low risk (in fact, startups can actually beat well established companies).
Enterprises are not as late adopters as is popularly believed. I came across numerous companies recently that are adopting the Azure AppFabric technology, which isn’t fully baked yet. The AppFabric misses some critical components that enterprises typically expect. For example, there is very little in terms of monitoring and analytics of the service. However, despite these short comings of a new technology (whether it’s from Microsoft or a startup), enterprises are more willing to try new things. First, companies need to distinguish themselves, and to do so they need to look at new technologies like cloud computing, mobile devices, social networks, etc. Secondly, many companies aren’t actually large companies but act more like a collection of smaller companies. The entire organization might be slow to adopt and replace existing technologies, however, a small group within the larger organization certainly will act as an early adopter. And being to get even that one small sell is a big win for a startup.
The cloud offers new opportunities for enterprise customers to take dependency on other smaller companies without the risk. Enterprise companies have built their own custom solutions or they took dependencies on other software vendor server products (e.g. Exchange, SharePoint, etc). However, the problem with many of these large vendors is that they are already successful, which means a few things: they have an existing product and they need to protect that asset, the existing product has been under development for a long time so it is also likely that it is an on-premises product. Because of these factors cloud computing (SaaS in particular), offers a benefit that can’t be beat. If an enterprise customer has to migrate from Version n to Version n+1 and they have a choice between an on-premise offering or a cloud offering, the cloud can provide a number of benefits: (1) no upfront cost for hardware, (2) no upfront cost for the software package, (3) a costing model that scales with the company, and (4) reduced IT costs to run/manage the software. (I’m probably missing a few). With these benefits I would bet an enterprise would be willing to buy into a startup that offers only 20% of the core functionality (which is used 80% of the time since I believe in Pareto’s Principle in software functionality).