jrodthoughts

As many of you know, the enterprise software space is receiving an unprecedented level of attention in recent months. By unprecedented, I really mean that we haven’t seen anything like this since the dotcom times or the days of the IT revolution on which money was being thrown at enterprise software companies.

The cause of this shift of attention from consumer to enterprise-focused startups might be found in the strong performance of enterprise software companies such as WorkDays, Palo Alto Networks, LinkedIn and Splunk in the IPO market last year which contrasts with the disastrous Facebook IPO and the disappointing performance of consumer darlings like Zynga or Groupon. In addition to the dynamics of the IPO market, we need to add the recent crunch on series A funding partially caused by the large number of startups that, after raising decent angel or seed rounds, haven’t been able to perform to the expectations of series A investors.

The combination of these two phenomenon plus a few other factors, have caused a lot of VC and growth equity firms to turn their attention to revenue-driven, enterprise software startups. Living and breathing in the enterprise software world, I totally love this level of VC-attention because I think it’s necessary to take the ecosystem to the next level. However, I am also very cautious and even a bit concerned about this level of VC-love because I think it can cause its own version of the series A crunch within the enterprise software startup ecosystem: let’s call it “the enterprise software crunch”.

The reasoning here is very simple: by receiving too much attention from the VC community, the enterprise software space is going to experience different phenomenons that could end up hurting the ecosystem. Disproportional valuations, an increase of the number of angel and seed rounds and an overly-crowded market with B or C players in important enterprise software areas such as security, enterprise mobility, cloud or big data are just some of the effects we can fully expect to see as a result of this VC-focused on the enterprise. Any one of those elements or the combination of them can end up hurting the enterprise software space. However, we need to remember that the software industry and the VC-community is really smart and, like a good friend of mine likes to say, they have been to a few dances before

Despite these concerns, we should agree that this recent shift of VC dollars towards enterprise software companies is a great thing for the ecosystem. If we can avoid the side effects of some of aforementioned concerns, we can be confident that the best days in this renaissance of the enterprise software space are still ahead.

PS: I promised a more detailed post about my thoughts on this matter as soon as I have a few hours to focus on writing

“I dream, I test my dreams against my beliefs, I dare to take risks, and I execute my vision to make those dreams come true.” - Walt Disney

In physics, tension is a type of force applied on a solid object such as a cable that imposes a deformation so that particles of the object are further apart than when in a normal state. Tension is often used to maximize the performance of specific objects in various circumstances.

Just like in physics, a company needs to create necessary tension between different elements in order to maximize its performance. Let’s refer to this characteristic as “positive tension”. One of the most interesting “positive tensions” in an organization is the one created between vision and execution. In a startup environment, vision is responsible for laying out the mission and future of an organization and formalizing parts of the strategy to materialize that mission. Complimentary, the execution aspect in a company is responsible for achieving near term specific goals without sacrificing the overall vision.

Like any two positive forces, vision and execution need to be in constant tension and bad things happen when they don’t. Companies without a strong vision to drive them become completely reactive and quickly irrelevant. Quite the contrary, organizations that are only focused on their vision without setting up the infrastructure to execute effectively on it a likely to fail rather quickly.

As a startup CEO, one of your most important jobs is to create the necessary “positive tension” between vision and execution. In my experience, achieving the right level of “positive tension” between vision and execution is a never-ending experiment and one that you should conduct very carefully. If the vision-execution tension is too strong, it can break your organization. However, without it will be very hard to maximize the potential of your team.

Recently, I spent a sometime with other enterprise software executives debating about strategies that make new enterprise software technologies defensible in the current market. By defensible we are referring to the ability of a product or service to retain market leadership after a big competitor decides to create a similar technology or delivery model. Obviously, to defend something you have to own it first so assume that we are referring to technologies with certain customer volume.

Ironically, more often than not I keep hearing my colleagues refer to the stickiness nature of a product as an aspect that makes it defensible. In macroeconomics, stickiness, if often referred to the ability of a variable (like price) to change. In the enterprise software world, we often refer to that term as the probability of a customer switching to a competitive solution once they have adopted a specific product or service.

As much as I can agree with the premise that stickiness presents very tangible benefits to enterprise software companies, I disagree with the thesis that it makes them more defensible. While sticky products or services can certainly achieve large levels of customer retention over time, they still need to figure out how to acquire new customers in a highly competitive enterprise software ecosystem. Just because a customer is stuck with your solution it doesn’t necessarily mean that they are not looking for avenues to switch. Awesome technology, frictionless delivery models, great partner or customer communities or my loved network effects will make your product defensible, stickiness won’t.

As an enterprise software company, it’s important to realize that, as hard that it might be, if your product or delivery model sucks, your customers will eventually find a way to switch to superior solutions. Besides, who likes to live in a world on which your customers are only with you because they can go somewhere else?