Ed Weissman on B2B Opportunities for Startups Part 2

Written by Sean Murphy. Posted in 3 Early Customer Stage, skmurphy

Ed Weissman (edw519 on HN) had another  great comment recently on Hacker News at  http://news.ycombinator.com/item?id=1424446 that builds on “Ed Weissman on B2B Opportunities for Startups” (I have added some hyperlinks for context)

Enterprise software sucks.

We don’t talk about it much here at HN, but think about it. Every man-made object you encounter every day was manufactured somewhere. And moved, more than once. Now add in all the sales, marketing, customer service, operations, accounting, finance, human resources, etc., etc., etc. needed to support that manufacturing and distribution. Next, add financial markets, healthcare, energy, entertainment, etc., etc., etc. and you have tons of stuff. But you don’t see it and rarely think about it. Kinda like most of the iceberg being underwater.

And all of this needs software. And most of what they have sucks. I mean really sucks. Enterprise software is so bad that there are multi-billion dollar industries devoted to consulting on how to use it, how to share it, and how to store it in data warehouses and harvest it. It’s so bad that lots of people have to dump the data out of their enterprise systems and into Microsoft Excel just to get anything done.

When Willie Sutton was asked why he robbed banks, he said because that’s where the money is.

What banks were in the 1930’s, enterprise IT is in the 21st century.

I agree with Ed that there are enormous opportunities for startups in the B2B or Enterprise market.  One of the reasons that Enterprise software is so poor is that the IT department often does not make usability a priority and has a lot of difficulty determining the productivity impact of a new application. They also strongly prefer their current vendors and for the most part are loathe to do business with startups. In 2007 I blogged about “Selling Around IT in Larger Firms” and suggested these rules of thumb:

Large firm IT departments are “gatekeepers”. Their job is to keep the enterprise network computing infrastructure safe and operational. New software from a new vendor is almost always viewed as a threat. Most of the time, they will say NO to any new software. Most of the time our clients have to sell around them. Here’s five tips for doing that:

  1. Provide a service (deliver the results of you running your software) instead of selling software.
  2. Package your offering as SaaS at a price that’s below the radar of IT.
  3. Leverage an existing partner: Who else is your prospect buying from?
  4. Find someone who is in a lot of pain whose needs have been ignored by IT.
  5. Find someone whose needs span more than one IT administrative boundary, so that no single IT group views satisfying the need as their obligation.

The other unfortunate aspect of a career in IT is that often turns software developers into anti-matter for customer development techniques and any marketing or sales approach that is designed to foster adoption. Most IT folks are handicapped by a tendency to dictate applications that can and cannot be used and have not mastered the skills of appreciative inquiry and conversational selling that are key to uncovering a prospect’s needs.

Alan Grinshtein was also impressed by Ed Weissman’s post  and used it as a point of departure in “The Enterprise Software Opportunity” to lament that too many startups focus on advertising driven business models:

The Sirens of Social have seduced too many good minds to build and crash startups. There are too many brilliant problem solvers who aren’t developing brilliant solutions for business. Enterprise software is particularly awful. Imagine the progress that could be made and the money that’s being left on the table. They could be blowing competition out of the water. Sad.

I think three reasons for this are:

  • understanding the value of your offering,
  • negotiating for a fair price with prospects,
  • continuing to enhance your offering so that it provides more value that customers are willing to pay for

are all hard problems.

As a result, many software entrepreneurs succumb to one of two temptations: either they treat themselves as the first customer (“scratch your own itch”) and build what they would like to use–making the critical assumption that they are an accurate proxy for other prospects without validating their hypotheses–or they “give the software way” to build up a large audience that they will figure out how to monetize later.


And Now a Word From Our Sponsor…

If you are hard at work on a B2B software product but are having trouble determining how to price it, or negotiating for the value that it offers,  or locating a good niche to target for early adopters, please contact us. We would be happy to explore how we can help.

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