Late last night I was reading an article about an entrepreneur that has accomplished moderate success by building an enterprise software product that adds sine new capabilities to a popular platform provided by a big software company (you can tell I am trying to not mention names ;) ). The entire article is centered around the benefits of this business model that allowed this entrepreneur to leverage an existing customer base and community in order to create a successful product. However, in my opinion, the article presents an oversimplified picture of that business model and ignores some of the biggest challenges startups can encounter when building an entire product that depends on somebody else’s platform
While the consumer market is packed with products that build on successful platforms like Facebook or Twitter, the enterprise game is quite different. The dynamics of the enterprise software market bring its own set of challenges and benefits when building a product that are dependent on a platform provided by another vendor. In the enterprise world, building a product on somebody else’s platform can be a very dangerous game that is not suited for every startup.
If you are a founder CEO building an enterprise software business on top of one of our old cousin’s platforms, you should consider some of the following challenges.
You don’t own your own destiny
The minute you build an enterprise software product that depends on another company’s platform, your destiny becomes tied to that vendor. From that point on, aspects such as product roadmap, pricing, sales strategies, customer acquisition models will stop being entirely dependent on the capabilities of your product and factoring in the strategies of the underlying platform.
Competing for attention
Big enterprise software vendors are notorious for implementing absurdly large partner programs. By building a product that is dependent on a big enterprise software platform, you will be constantly competing for the attention of the big enterprise software company with a pool of partners which sole purpose in life is to try to differentiate themselves in the eyes of the big enterprise software uncle.
You can become a feature not a product
Differently from the consumer market, enterprise software vendors rarely produce complete platforms that will enable a startup to build a unique product and customer identity. Instead, enterprise software vendors are more focused on providing feature rich product to their customers that while sometimes offer some room for new technologies that complement the ecosystem are far from being a platform to sustain a long term product strategy. In that sense, you should be clear whether you are building your product on an open platform that will allow you to build long term capabilities or you are just adding a feature to existing product.
That make that distinction clear, we can look at companies like Microstrategy and Quest Software. Over the last decade, BI vendors like Microstrategy have built super feature rich products with a long term identity on top of platforms such as Oracle or SQL Server. Contrary to that model, a company like Quest Software has built an incredible business by providing additional operational management capabilities on top of different IT product. While both companies have been incredibly successful, we can agree that Microstrategy is building a complete product while Quest is adding features to existing products.
Sales cycle dependency
Building an enterprise software product on top of somebody else’s platform will certainly introduce dependencies on the sales cycles and commercial models of your product. In that sense, your customer acquisition strategy will always be somehow dependent on the parent vendor and your boundaries tied to theirs.
Pricing model dependency
Pricing is one of those dependencies we tend to ignore when building an enterprise software product on another vendors’ platform. When doing this, be aware that changes in the pricing or sales strategy changes of the parent technology can drastically affect your product pricing model. Having a strategy to mitigate those changes can be the difference between success or failure in your startup.