Our “Checklist” for Enterprise software investing with a SaaS “flavor”

Our “Checklist” for Enterprise software investing with a SaaS “flavor”

February 13, 2014

Enterprise software can be defined as applications that manage critical business processes such as accounting, business intelligence (BI), communication and collaboration, customer relationship management (CRM) and human resources (HR). It is a very significant segment of the global IT market- forecast by Gartner to have reached $297 billion during 2013.

 

The enterprise software market has typically been dominated by very large players such as SAP, Oracle, IBM and Microsoft with whom it is very difficult for early-stage companies to compete. The good news, however, is that the SaaS model, which has penetrated every enterprise software segment, has evened the playing field, paving the way for innovative software companies to take their place on the enterprise software stage. The SaaS model is changing the rules of engagement between companies and enterprise software vendors. In contrast to the “captive” customers of traditional on premise enterprise software deployments, SaaS vendors-with their freemium and pay-as-you-go models¾know that they must consistently provide high levels of user satisfaction and support in order to convert and retain paying customers.

 

But, aside from embracing the SaaS model, how can an early-stage enterprise software company enhance its chances for success? Here’s our checklist before we decide whether to invest:

 

  1. Team: Your management team must be experienced in the relevant technologies and in the prevailing industry business practices in order to set and then deliver on the right strategy.

  2. Market – a bit and untapped market is a must!

  3. “The customer is king”: From product design, to deployment, to support, one and only one consideration should be foremost in your company’s DNA-are you bringing value to your customers and is it the exact product that solve their pain

  4. Network: You cannot do it all on your company’s inherently limited resources. Whether it’s to fill knowledge gaps or find the best business partners, there is no substitute for building and maintaining a strong, worldwide network.

  5. Flexibility: Your platform must be flexible enough to be able to respond to changing needs and leverage emerging opportunities in a timely manner.

  6. Willingness to take and manage risks: It is inevitable that carving out a place in the enterprise software market is going to require taking risks. But you also have to be vigilant regarding the cost-benefit of a risky path taken and be ready to re-group as necessary.

Background Material

Key success factors are defined as factors that are critical for best performance, rather than performing good enough to keep alive (critical success factors).(1)

 

  1. Flexibility: ability to respond to changing market needs, identify new opportunities

  2. Leadership and software talent:

a. Low hierarchy

b. Experience in technology, industry, entrepreneurship

c. Risk takers, but also able to quickly identify and correct mistakes (the downside      of risk-taking)

3. Networking: to fill in knowledge/resource gaps

4. Good customer relations: Lots of face time with customers, listen to and meet their           needs/requirements; better to focus on fewer customers but make them happy

5. Operational efficiency: Optimal usage of inherently limited resources

 

The term 'enterprise software' describes the applications that large companies use to conduct line-of-business operations such as accounting, business intelligence (BI), communication and collaboration, customer relationship management (CRM) and human resources (HR). These tools are traditionally deployed in on-premise data centers, often as multi-faceted enterprise resource planning (ERP) suites from software giants like Oracle, SAP, IBM and Microsoft. 'Enterprise software' also encompasses vertical, industry-specific solutions, which are commonly developed as custom in-house apps that IT departments then need to integrate with commodity enterprise applications or suites. (2)

 

Key challenges:

  • User hostility

  • High licensing and support costs

  • Lack of flexibility and agility

 

The ability to implement platform and infrastructure services in the cloud quickly and cost-effectively has led to a profusion of scalable pay-as-you-go SaaS applications that now address all areas of enterprise software (see the listings in ZDNet's recent SaaS special feature). The SaaS model is not without its drawbacks (there are often worries about security, outages, compliance, performance, data mobility and integration for example), but the advantages (cost savings, scalability, accessibility, easy upgrades and resilience) are increasingly compelling for many organizations.It's clear that, generally, the combination of a challenging economic climate and the adaptive possibilities of the new cloudy/mobile/data-driven/socially engaged environment will drive a lot of evolution in enterprise software.

 

So how do new entrants avoid this cycle all together? By focusing on building enterprise software that the users love, driving demand up to the CIO. Vendors like Workday, Jive, Yammer, or Rypple are responding by investing more in design, usability, openness, and the total user experience. They’re measuring success by user adoption, rather than feature checklists. And thankfully, buyers are catching on.(3)

 

Today, the size and scope of the markets that even the tiniest enterprise startup can go after, and the amount of data and tools at their fingertips, are unprecedented…

 

When business applications are delivered over the web, releases often occur on a weekly (or daily) basis – far from the standard three year cycle experienced by those working for Microsoft and most incumbent enterprise software companies. Engineers get to see their projects come to life immediately, and the organization benefits from instant product feedback.

 

The new approach to building and delivering enterprise software also entails a very different sales process…With the freemium model in particular, software companies now have an incredibly scalable and qualified lead generation vehicle; your sales team doesn’t have to bang on the doors of unsuspecting and uninterested buyers, because your prospects are already familiar, and likely successful, with your product.

 

The unstoppable trend toward “renting” vs. “buying” software means the vendor gets paid only as the software continues to solve problems for its customer. As forcing functions go, this is a pretty good one to ensure customers are happy — and it means implementation services, constant feedback loops, and deep customer engagement are all critical to successful retention.

___________________________

1 . Key success factors of small software firms, Thesis presentation by Peter Tornroos, May 20 2003

2. The Evolution of Enterprise Software: An overview, Charles McLellan, May 1, 2013

3. Building An Enterprise Software Company That Doesn't Suck, Tech Crunch, July 10, 2011, Aaron Levie,

 

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Incentive Management Inc.
Ariel University Center of Samaria Upper Campus, Building 10 
+972 (0)3 908 5000
+972 (0)3 936 6873
Incentive, Peregrine Ventures Incubator 

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