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Enterprise Software Lessons: Selling Top-Down vs. Bottom-Up

ABCEnterprise software sales are always a difficult task for a startup and something that is fundamentally different from the consumer market. Traditionally, enterprise software sales developed a reputation for being a long and bureaucratic process. However, recent technology movements such as the consumerization of IT, the popularity of open source technologies or the emergence of mobile devices have opened new avenues for products to get into the enterprise.

When thinking about selling to enterprises, there are two main models that will dictate the core of your strategy.

  • Top-Down Sales: Some products get sold directly to a decision maker like a Chief Information Officer(CIO) or Chief Marketing Officer(CMO).
  • Bottom-Up Sales: As an alternative to the top-down sales model, some technologies have the capability of getting adopted within enterprises by non-decision-makers such as developers or information workers before they make all the way to a decision maker.

While the top-down approach have been the cornerstone of enterprise software sales for decades, bottom-up models are a result of the new movements such as the consumerizaiton or IT or the democratization of software. As any new and evolutionary model, it’s very tempting for startups to try to embrace a bottom-up sales model. However, it’s important to realize that both models have very well defined strengths and weaknesses and, more importantly, they have a profound impact in the structure of your sales organization.

Top-Down Sales

This model is great for generating revenue from every single customer. Additionally, a top-down sales model is essential to land large deals that need that become strategic to your customer.

The top-down sales approach typically comes at the cost of longer sales cycles that require a well-established sales force. Additionally, achieving relevant market share with this model is extremely resource intensive as your sales force needs to be involved in every deal.

Bottom-Up Sales

The bottom-up model is great for achieving volume and spread your footprint within a wide customer base. This model does not typically require a large sales force and guarantees that your sales executives only get involved with a prospect after they have evaluated the product and are truly interested.

While achieving customer volume is great, the bottom-up sales model does not necessary conduct to revenue and might put you in a situation of supporting thousands of non-paying customers. The tech startup scene is full with stories of companies that were able to attract a massive number of non-paying customers before going out of business. More importantly, embracing a bottom-up approach requires a level of scalability that can become resource intensive for any startup.

Top-Down Does Not Mean Free

When embracing a bottom-up sales model, it’s important to realize that the model doesn’t necessarily require to offer a free entry point to the product (fermium). While fermium models makes a lot of sense as a top-down approach, there are plenty of scenarios on which enterprise software startups can charge a small nominal fee as a starting point.

Deciding whether to adopt a top-down or bottom-up sales model is essential to structure your sales organizations and customer acquisition processes. For some products, top-down and bottom-up approaches are mutually exclusive. However, technologies like Box, AWS, MongoDB have proven that you can effectively developed both sales models achieving large market share while also acquitting paying customers.

 
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Posted by on December 23, 2013 in Uncategorized

 

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I am Back! And We Just Raised $5 Million Dollars

KIDOZEN-LOGO-NEGATIVE_2After a hectic couple of months, I am finally able to sit down and share some exciting news with you guys. The last 2 months have been incredibly intense for me to the point of affecting my regular writing on this blog. However, I do have a good excuse. If you haven’t read the news, I am super happy to announce that KidoZen just completed a $5M Series A led by Third Point Ventures!

Since the Wall Street Journal broke the news two weeks ago, I have been having different conversations with different folks from different backgrounds: VCs, journalists, entrepreneurs, partners, etc, explaining our reasoning and experience during the process. Based on those conversations, I thought it might be a good idea to share some of those insights with you guys. In that sense, I summarized some of the not-so-obvious lessons that I either learned or validated during the process.

While I work with various VC groups as a tech advisor, this is the first time I have raised institutional capital. In that regard, you might find some of my perspectives useful if you thinking on starting the process of raising VC money for your company. For the purpose of this blog post, I am going to keep the explanations short and simple. We can expand into the details in subsequent blog posts.

If you can, only raise capital when you are ready

From a financial standpoint, KidoZen didn’t need to raise capital. We have a large number of paying customer and revenue numbers on the mid seven figures. We decided to raise capital because we felt the company is at an inflection point from the growth perspective and we have a very aggressive roadmap in order to continuing acquiring meaningful market share. That position gave us a lot of leverage during the process in order to bring on-board the right partner under the right terms.

You are always raising

Officially, we met with different VC groups the last week of September and received the funds the week before Thanksgiving. While you might think that was a very rapid process, the fact of the matter is that we have been having unofficial conversations with different VCs for the good part of the year trying to identify the right partners for a company like KidoZen.

As a CEO, I am of the idea that you are always raising capital. Whether you are officially raising or having informal conversations, it’s your job to keep potential investors interested and up to date about your company and progress. If you only go on a fundraising exercise when you need it, you will put yourself and your company under unnecessary amounts of pressure that might result in an unfavorable deal.

Keep the team focused (or don’t tell them anything)

When we started our official fundraising process, the KidoZen executive team made the decision of not sharing the news with the entire company. While that might look contrary to the principles of transparency we constantly predicate, we decided it was very important for the team to remain focus on the product, customer and partner acquisition and not add any additional distractions.

Raising capital is a very stressful process. As a CEO, you need to decide whether you want to share that pressure with your team or put that burden upon yourself and keep the team focused on execution. There is no right answer, it all depends on your current state and culture of your company.

In our case, we decided that sharing that level of pressure and uncertainty with the entire company was going to become an unnecessary distraction. At the same token, we made the commitment to share the news with the team as soon as we knew the outcome regardless of whether we were successful or not.

Be honest, all the f… time

I can’t stress enough the importance of this. If you are truly partnering with your investors to build a great company, you need to be completely transparent with them. We see our investors as part of the team and not as an external entity. If your investors really believe in your company and are really interested on investing, they will roll up their sleeves and help you address any problems that are an impediment for the fundraising process.

Make sure your company is organizationally ready for institutional investors

Complementing the previous point, If you are thinking about raising institutional capital, I would suggest you take a serious look at your company and make sure it can undergo the detailed due diligence process which is typical is series A-B-…Z. in our case, I completely underestimated our readiness as a company and encountered numerous challenges throughout the Series A process. Thankfully, our investors, legal counsel, finance group were incredibly efficient fixing any unexpected issues and brought the process to a successful closure. At the end, I think that exercise made KidoZen a stronger and certainly more operationally organized company.

Trust your investor

Either you see your investors as true partners and part of your company or as a glorified ATM. If the former, is your duty to be completely honest with them, trust their judgment and accept the occasional criticism in order to make your company better. If you don’t like to be challenged on your decisions or have a problem when people disagree with you, I would suggest you explore other avenues to raise institutional capital. Dealing with VCs is too painful to do it just for the money.

Get help, don’t do it alone

Another one of my mistakes. I really thought that I could handle most of the fundraising process by myself with the help of our legal counsel and finance team without the need of additional help. What that ended up being mostly true, the process was as painful as short. Raising institutional capital can be incredibly stressful and not having anyone to share your challenges and frustrations with makes it even worse.

In my case, there were a couple of times on which I felt completely exhausted about the whole process. At the same time, I didn’t want to communicate that state of mind to the team because I felt it was very unfair to them. To this day, I can’t thank enough my dear friend (and new KidoZen board member ;) ) Jason Port for his support and help during this process.

I know a lot has been written about the process of raising institutional capital. I hope some of this ideas resonate with you as I was positioning them from my own experience. I will share more details in a future post.

 
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Posted by on December 13, 2013 in Uncategorized

 

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Oracle Partners with Microsoft, Salesforce.com and NetSuite but Still Looks Ugly.

After reporting disappointing numbers last week, Oracle’s Larry Ellison pre-announced a series of important and exciting partnerships with different cloud providers and hinted the names of Microsoft, Salesforce.com and NetSuite. As promised, this week Oracle announced three different partnerships with the aforementioned cloud providers. While this is, undoubtedly, a very interesting move on the Oracle side, I find hard to believe is will make a difference in their current position in the cloud market. Despite these partnerships, Oracle still looks very boring in the cloud!

The Microsoft Deal

The essence of these partnership, Oracle will certify and support Oracle software — including Java, Oracle Database and Oracle WebLogic Server — on Windows Server Hyper-V and in Windows Azure. Microsoft will also offer Java, Oracle Database and Oracle WebLogic Server to Windows Azure customers, and Oracle will make Oracle Linux available to Windows Azure customers.

My thoughts?

From a Windows Azure perspective I find hard to believe this deal will make any difference on WebLogic or Windows Azure situation. While Windows Azure has supported Java for a long time, the uptake hasn’t been great within the enterprise customer community. Windows Azure has been more appealing to traditional Microsoft shops while developers building Weblogic applications are not necessarily crazy about the cloud.

More importantly, this deal doesn’t help Weblogic to stop the migration of developers to competitive platforms

The Salesforce.com Deal

As part of this partnership, Salesforce.com plans to standardize on the Oracle Linux operating system, Exadata engineered systems, the Oracle Database, and Java Middleware Platform. Oracle plans to integrate salesforce.com with Oracle’s Fusion HCM and Financial Cloud, and provide the core technology to power Salesforce.com’s applications and platform. Salesforce.com will also implement Oracle’s Fusion HCM and Financial cloud applications throughout the company.

My thoughts?

Very important deal for Oracle! However, this feels like Salesforce.com helping out Oracle more than anything else. In terms of the impact, it’s very hard to tell. Salesforce.com already runs on Oracle software and it’s difficult to imagine impactful the integration between the two SaaS platforms will be. Most enterprises require high level of customizations in order to implement these integrations.

The NetSuite Deal

Under the partnership, announced Wednesday, NetSuite will integrate its enterprise resource planning (ERP) software, which companies uses to manage various parts of their day-to-day business, with Oracle’s human resources (HCM) apps.

My thoughts?

NetSuite customer base is mostly composed for premium-medium size business. I am not really certain how popular HCM would be within that community that are not the typical Oracle buyer.

 

While all three deals represent a major change from Oracle’s traditional “take no prisoners” approach, it’s really hard to see any of these strategic alliances moving the needle for Oracle’s position in the cloud space. Regardless, it’s very good to see these level of collaboration between traditional rivals. Time will tell….

 
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Posted by on June 28, 2013 in Uncategorized

 

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Enabling the Mobile-First Enterprise

I have been traveling for the last 12 days between visiting customers and speaking and conferences and that have prevented me from blogging as regularly as I would like to. Thankfully, I will be heading home tonight :)

However, there is a new article I would like to share with you guys and get your feedback. This Monday ReadWrite published an article of mine about the “Mobile-First Enterprise” which is a topic I spend a lot of time thinking about it. Essentially, the thesis of the article is that we are witnessing a movement in the enterprise that goes beyond the implementation of mobile apps and instead is re-engineering entire business processes with mobility as the first class citizen. The article attempts to formalize some of the principles of that movement.

Uou can find the article at http://readwrite.com/2013/06/17/enabling-the-mobile-first-enterprise#awesm=~o9j5DAF4kj6dH0

It’s a very easy and short read. I hope you enjoy it and send me some feedback

 
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Posted by on June 20, 2013 in Uncategorized

 

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Enterprise Software Lessons: The Importance of Building on Disruptive Platforms

I have been learning a lot about Bitcoin recently and I am excited about the possibilities that opens up to provide an anonymous currency to the internet. Apparently, I am not the only one excited about it. Lately, we’ve seen an explosion of startups trying to build technologies around Bitcoin. This fast growing ecosystem is an example of startups building on a foundational platform, in this case Bitcoin.

For any startup, there are very quantifiable advantages of building products on disruptive platforms but these benefits are even more obvious in the enterprise where technology disruption happens at a slower pace. For enterprise software startups, customer acquisition and awareness are well known challenges that end up consuming a lot of time and resources. Disruptive foundational technologies such as the IPhone or AWS can provide very interesting side effects for enterprise software startups to help them overcome some of those early-stage challenges. Below are some of my favorites:

  • Indirect customer acquisition: Once an enterprise decides to embrace a disruptive technology such as the IPhone or AWS they will be one step closer to needing your complementary product or solution.
  • Customer Network Effects: Being part of a selective group of technologies needed to implement a foundational platform in the enterprise will put your company on the radar of any enterprise looking to implement those type of solutions.
  • Indirect Marketing: The marketing developed around the foundational platform will bring more visibility to your enterprise software product.
  • Product Evolution: As the underlying foundational platform evolves, adds more features, etc you will have additional avenues to leverage those new capabilities as part of your enterprise software product.
  • Being part of a bigger ecosystem: To complete the cycle, being part of the ecosystem around a foundational platform or technology, will allow your enterprise software product to indirectly benefit from the efforts.

Obviously, not all enterprise software startups have the option of building on a disruptive platform neither is this a requirement to succeed. Quite the contrary, the startups that can capitalize building on a disruptive platform or technology movement are a very small percentage of the general enterprise software ecosystem. However, there are no doubts of the indirect benefits and network effects that a disruptive platform can bring to your enterprise software startup.

 
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Posted by on May 30, 2013 in Uncategorized

 

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No Talent, No Problem: Become a Big Company Bureaucrat

Everyone working or doing business with large enterprises at some point have run against the frustrating bureaucracy reigning in those environments. This type of bureaucracy is an inherent aspect of big organizations but I’ve also been surprised of encountering a few startups launched by people with big company background which amazingly presents the same frustrating levels of bureaucracy.

Seeing that phenomenon has made me realize how much bureaucracy is not only a product or big company environments but also a consequence of hiring people with “bureaucratic DNA” ;)   At the end of the day, a lot of times bureaucracy is a mechanism created by people with no real talent in order to survive in a company environment.

How to spot a big company bureaucrat?

If you are working in a big company you already know who those guys are. If not, just look around for some of the following characteristics:

  • They want control but have no idea what to do with it: Bureaucrats demand and fight for control all the time because it makes them feel important. However, when granted control over a specific situation, they have no idea how to make effective decisions.
  • They have no real talent: You wonder who these people bribed to get to their position ;) Big company bureaucrats bring little or no marketable talent and instrument complex processes to hide that fact in the eyes of their colleagues.
  • They manage by fear: When in management positions, big company bureaucrats constantly inspire fear to their subordinates. This is just about the only way they know how to manage a team because fear is the only thing that makes them feel in control.
  • They can’t make a decision without calling a meeting: Making decisions entails taking risks and big company bureaucrats are adverse to risks; so what do they do? They call meetings to make other people responsible for the decision.
  • They call meetings for everything: Big company bureaucrats not only call meetings to get consensus about decisions but they call meetings for everything. Meetings makes bureaucrats appear busy in the eyes of their colleagues and, at the end, they have nothing better to do.
  • Everything is a crisis: Big company bureaucrats feel comfortable in crisis environments because they don’t know how to discriminate real important decisions from average ones. Besides, crisis offers bureaucrats the feeling of being in control that they so desperately need.

What do you think? Do you live surrounded by big company bureaucrats?

 
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Posted by on March 26, 2013 in Uncategorized

 

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Most Enterprise Software Analysts are Useless: Find the Right Ones

During last week’s trip to Europe, I received a call from the CIO of a fairly large organization whom I met last year, soliciting some advice on a technology evaluation process they were conducting on the mobility space. Needless to say I was a bit surprised by the sudden call given that this trip to Europe was exclusively focused on a couple of speaking engagements and I hadn’t scheduled any customer or partner visits. When I inquired a bit more about the causes of their request, the customer explained that they have been increasingly disappointed by the results of their technology evaluation efforts with a very prestigious analyst firm and needed a (in their own words) “more hands on opinion”.

As I started reviewing the analyst recommendation, it turned out our customer was absolutely correct in their assessment. The entire research reflected a very high level technology viewpoint of the different products as focused almost entirely in the support for some well-known buzzwords. While clearly frustrating, this experience is far from being an isolated incident. The fact of the matter is really hard to find enterprise software analysts with the hands-on knowledge about the technologies they evaluate, the technology knowledge and the market perspective to offer a pragmatic analysis about a specific technology trend. Most analysts in large firms, they have little or no practical experience developing products or solutions in the enterprise and they focused their analysis in large customer surveys. Also, these group of enterprise software analysts always seemed to be disconnected with the investment trends taking place in the venture capital or private equity communities which fosters a lot of the innovation that eventually impact the enterprises.

As a result, a lot of organization pay large amounts of money for receiving some very basic and often wrong advice that almost always tends to favor the most established players in the market.  A solid research in an enterprise software space should be a combination of a solid understanding of the current technology but also about the vision behind the product, market conditions, etc.

Obviously, my opinion about enterprise software analysts is far from being a generalization and you can still find some very talented analysts that come from a product engineering background who tend to go very deep in their researches in terms of the technical capabilities of a specific product of technology. I’ve been lucky enough to spend time with some of those rarely talented analysts and received some very valuable advice.

I know my thoughts about this topic can come across as very blunt, but I find it incredibly infuriating every time I see organizations being affected by relying on research materials that are completely disconnected from reality. My advice to enterprise customers to always do the correct due diligence when interacting with analysts. It’s not that hard to determine when you are interacting with an analyst with a solid understand of the space and your current needs or whether you are dealing with a someone who just likes to play to be an expert.

 
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Posted by on March 11, 2013 in Uncategorized

 

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Inspire With Your Vision Not With Success

At dinner last night, we had a very interesting debate about different strategies for building great teams. While hiring well is, undoubtedly, one of the most difficult elements of startups, the winning formula seems to be very clear: Hire great people that work great together and are inspired by the company’s vision. The first two factors of the equation need no further explanation; great people that can work well together is a winning formula to build great things. However, great people and great teams are not enough to build great companies; you still need an inspirational vision.

In the early stages of a startup vision is everything. When you don’t have a lot of traction or financial success, only a great visions can inspire people to join your team and help to make your company better. However, after the company grows a little bit and achieves some success, I’ve found that a lot of startups stop emphasizing their vision as the cornerstone of the company and, instead, they focus on inspiring employees with their initial success.

Success can be projected in many ways: industry awards, financial rewards, killer offices etc. Some of those versions of success can definitely attract people to join your company as most intelligent people prefer to join a successful venture than an unsuccessful one. However, success is rarely a factor to inspire people to do great things. When a successful image becomes the center of your company instead of an inspirational vision, you are likely to attract people that are only there in the good times and that can only execute in short term goals. It’s not a surprise that a lot of companies go through a transformation process after they achieve an initial wave of success in order to find their soul again.

As a founder and/or CEO, your MOST IMPORTANT JOB is to clearly articulate your company vision to the key players in your company so that they can communicate it within their teams. A solid vision will keep your team together and focused during the difficult times and it will serve as the inspiration to take your company to the next level during the good times. Financial success, a fun culture, awards are important but rarely inspirational. Selling a great vision can help create successful companies but selling success will only help you to create mediocrely successful ones.

 
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Posted by on February 14, 2013 in Uncategorized

 

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Enterprise Software Lessons: The Challenges of Acquiring International Customers

Last night, I was having dinner with some executives from one of our partners discussing their recent successes on acquiring customers and developing enterprise mobile solutions powered by our KidoZen platform in Eastern Europe and Asia. During our conversation, I couldn’t stop thinking that one of the main reason behind our partner’ success is their deep understanding of those markets and the dynamics to effectively execute on them.

Establishing a solid international customer presence is one of the hardest endeavors for any company but it’s exponentially more difficult in the enterprise software space. The main reason that makes international expansion so difficult for enterprise software companies is that customer acquisition, pricing and even negotiation dynamics are really influenced by the cultural and socioeconomic aspects of a specific region. These challenges are not as apparent in areas like North America and Western Europe that share a lot of economic, social and cultural commonalities but it’s very obvious on almost every other case. Underestimating socioeconomic, cultural and historic differences is one of the main mistakes made by enterprise software startups attempting to acquire international customers.

In order to mitigate those challenges, I typically advice startups to focus on establishing the correct strategic alliances with other enterprise software vendors with the right market and business-culture understanding and the professional reputation to be successful in a specific country or region. Even though establishing mutually beneficial and effective strategic alliances is an incredible hard effort, it can be extremely rewarding in the long run. Particularly in the enterprise software space, strategic partners can complement your product or service with the right connections, customer acquisition and delivery processes that will help you to organically grow znc be successful on that market. Attempting to acquire customers internationally all by yourself, can result in an exhausting exercise that will distract you from your main missing or creating great enterprise software technologies or services.

 
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Posted by on February 8, 2013 in Uncategorized

 

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Enterprise Software Lessons: IT Services Keep Gaining Momentum

Yesterday, big data consultancy Think Big Analytics announced a 3M angel round led

by Daniel Scheinman with participation from WI Harper Group. Think Big Analytics specializes on providing professional services around the implementation of solutions powered by on-premise or big data technology stacks.

This founding round is another example of the increasing interest of VC firms in elite IT professional services firms that focus on hot enterprise software trends. Just a few years ago it was unconceivable for a top VC firm to invest on a professional services organizations. Lack or recurrent revenue, long sales cycles, scaling challenges etc were often cited as factors that conspired against the VC interest on these type of business models.

However, the rapid emergence of new technology trends such as big data, private clouds, enterprise mobility, security among others have slowly but steadily beginning to change those dynamics. Given the difficulties for IT organizations to implement these technologies on their own, professional services firms can enjoy of highly lucrative deals in areas that are making a huge difference in the enterprise.

In my opinion, this trend is only going to get bigger in the next few months and we are likely to see more boutique consulting firms raising different rounds of institutional capital.

 
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Posted by on February 6, 2013 in Uncategorized

 

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