A New Model for Enterprise Software Startups

By Jay Valentine

Fundamental change in societies occurs at the edges and works its way to the center. The edge is often a border where different cultures interact in much different ways than at the center where a society reinforces its basic characteristics.

The edge of the enterprise software civilization comprises the raw startups who have potentially disruptive technologies based on either a new way to do something or using an old way in a novel manner. This is the frontier of change—of new business models.

A characteristic of some such startups is being led by a second or third startup veteran–thus they know what may work and what does not.

There are two Texas startups who exemplify what may well be the start of a trend—imperceptible at first, but something that may become the model in the future.

Both firms understand taking in early private equity is massively dilutive to their wealth and will cause them to lose control of their destiny. One of them is led by a young, first-time entrepreneur. The other is led by a former VC, serial entrepreneur who has run multiple vibrant businesses. They have lunch together regularly.

Both executives articulate facets of what may become a new enterprise software go-to-market model:

No private equity. Period.

Sell your first 5 – 8 deals yourself or have a contingency based sales team who gets paid only if it produces.

Expend selling resources only on the early adopter and innovator. Any other target is wasteful.

Use the leveraged sales model. Have a third party take you to the market, do not waste the time trying to dial for dollars or get into incessantly long sales cycles. Find that one partner who will take you into its installed base.

Never hire the ridiculously expensive sales force that eats up to 40% of your revenue. Today enterprise sales reps, most of whom could not sell to an innovator or early adopter, make well into 6 figures for just taking orders. Those days cannot continue forever. Nothing like that does.

Marketing programs that are “energy consuming” rather than “energy producing” are useless in this emerging model.

What’s the difference? Marketing using spam generators (Google inbound marketing), massively expensive outings, dinners, entertainment makes no sense. Those using it have zero ability to differentiate so they embrace spam. That is energy depleting. Spam is never the right answer.

Marketing that causes the prospect to step up and bring another prospect to the table is energy producing. That is the new way. It is the only way that is sustainable.

A story: one of these two firms took its IoT (Internet of Things) product to a potential customer. A billing process that ran for 24 days using traditional relational technology, in a state-of-the-art data center now runs in 11 seconds (on an iPhone—no data center needed.) That is not a typo. 

The first prospect, after testing the technology, took it to 4 other firms, and now each wants to take it to several more. Cost of this marketing program: $38.50 for one lunch. That is energy producing marketing. 

Both of these tech firms understand they can drive $20 million a year in revenue with 3 or 4 sales reps. Since each rep would make more than several brain surgeons combined, turnover is zero. HR issues are minimal because your entire company can meet in a Starbucks.

These are not traditional sales reps—they are ones adept at selling new technology, in emerging markets, with leveraged models, from a company nobody ever heard of.  Nobody from Oracle or HP need apply.

Neither firm has a customer service department because their products are either sold by a third party who has one or their product does not need much customer service.

While this may appear to be something quite impossible, it is happening and it is a joy to watch.

This may be a new model for some startups. It clearly is working for 2 Texas tech firms. They are taking a little longer to get to market; their equity is 100% theirs and they support massive valuations.

I suspect, over time, others will realize that selling to the early adopter and innovator marketplace requires a very different model and firms do not have to lose control of their destinies to get there. And early venture capital will cause loss of control.

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