The rise of enterprise marketing

Building an enterprise software company used to be largely about sales, because enterprise software was sourced and purchased by high-level business people. Those business people needed to be charmed and convinced, an activity that was distasteful to many technologists.

Internet-based delivery (“SaaS”, “cloud”) dramatically lowered installation costs, letting individuals or small groups buy software on discretionary budgets or use basic versions for free. As adoption spread throughout the organization, the value of the software eventually percolated up to high-level business people who could write large checks to get features big companies need, such as administration, security, integration, compliance, and support. This ”bottom-up” approach was pioneered by Salesforce and open source companies like MySql. Recent enterprise success stories also follow this model, e.g. New Relic, Yammer, Twilio, and Github. Many of these companies have processes that would have seemed crazy ten years ago – e.g. sales people only handle inbound inquiries or only call customers who already use their product.

Thus enterprise software went from being about sales (one-to-one) to being about marketing (one-to-many). Marketing requires crafting a compelling message, figuring out the right channels and then optimizing. But the most effective marketing is a compelling product that can be easily tried. As a result, as Benchmark’s Peter Fenton said recently: ”We’re seeing a fundamental shift from sales-driven companies to product-driven companies. The companies that are leading the way there let this consumer and product focus permeate the culture of their companies.”

One of the most visible manifestations of this shift is the refreshingly accessible language on modern enterprise websites. Sales-driven enterprise software companies speak the arcane language of CIOs. Marketing-driven companies talk directly to business users (e.g. Yammer) or developers (e.g. Github).

This is good news all around. Enterprises are more likely to get software that incorporates the advances made over the last decade in consumer software. Startups get a shot at creating this software, and get to do so on a fairly level playing field. The product and marketing focus should also attract a lot more technologists who were turned off by sales. The only losers are incumbents who continue to pursue the old model.

Some tips for interacting with the press

Here are a few things I’ve learned over the years about the best ways for entrepreneurs to interact with the press (by press I mean blogs as well as traditional media).

– Don’t be afraid to ask what the rules are. Is this on or off the record? If they are writing an article about your company, do they require exclusivity? What is the angle of the story?

– Don’t use a PR firm unless you are so successful that you need someone to help you manage inbound press interest. Most journalists, when talking candidly, will tell you they’d vastly prefer getting an email from the founder of a startup than a PR firm. If you’re Bill Gates, it is understandable that you have someone reaching out for you. If you are a small startup, having a PR rep contact a journalist says “I’m not competent enough to reach you” or “I don’t respect your time enough to reach out directly.”

– Treat journalists with respect. Tech/business journalists often interact with rich and powerful people, some of whom treat them disrespectfully. Like entrepreneurs, journalists are usually interesting people with diverse interests. You’ll probably like them if you talk to them and might even become friends.

– Unless you’re a super hot startup, the existence of your company is not a news story. Exclusives of launches, financings and acquisitions are usually news stories. Trend stories that you are part of could be a news story. Relating your startup or data your startup generates to something already newsworthy (journalists call this “pegging”) can dramatically increase your chances of getting covered.

– Whether you like it or not, the press will put your company into a category, and might run “horserace” stories comparing how the companies in your category are doing. The best you can do here is to try to choose which category you’ll be put into. Arguing that you have no competitors or are creating a new category is pretty much impossible.

– Try to put yourself in the mindset of the journalist. How will this story get them on Techmeme or featured by their editors? What were their most successful recent stories? Do background research on any reporter before talking and read a bunch his/her articles.

– Don’t just contact reporters when you need them: try to be helpful even when you don’t. Sometimes, I get calls to talk about, say, the state of the venture market or asking for some background on a tech sector that is new to the journalist. My guess is they appreciate this and are more responsive when I contact them about a possible story.

Platform distribution risks

When your product extends a platform’s functionality, one of the main risks you face is that the platform could embed your product’s key features within the platform – what is sometimes called subsumption risk. This happened to a lot of startups in the 90s that built products for the Windows platform.

When you depend on a platform for distribution (acquiring and retaining users), you take on different risks. Specifically:

1) Oversaturation. The risk that supply of products on the platform significantly outpaces demand. This seems to have happened recently to the iOS App Store: there are over 500,000 apps and counting, and popularity tends to be highly concentrated, making it very difficult for new apps to get noticed. Oversaturation also happened to Google (organic) results in most query categories in the last 2000′s.

2) Barriers to discovery. The risk that the discovery methods on the platform aren’t meritocratic. iOS apps depend upon appearing in iTunes’ Top 25 lists, leading to a “rich get richer” bias, along with aggressive attempts to game the system. Apple has other app discovery mechanisms like its Featured Apps and Genius features, but those seem to drive far fewer downloads than the top lists. Google search has increasingly been favoring Google’s own products and also seems to heavily favor older, well-entrenched websites, making it very hard for new sites to gain significant SEO traction. Currently, social networks like Twitter and Facebook seem to have the most meritocratic discovery mechanisms, which is one reason so many startups target them for distribution.

3) Throttling. The risk that the platform will throttle distribution or monetization (for apps that rely on paid advertising, throttled monetization also means throttled distribution). Facebook started out letting apps send unfiltered notifications to users’ timelines but then introduced algorithms that heavily filtered them (thereby entrenching the position of leading app makers like Zynga). Facebook also started out letting apps charge users directly, but later changed that policy and imposed a rev-share.

If you are launching a new website or app, you should have a distribution strategy beyond just “people will love it and tell their friends about it”. Your strategy should probably involve at least one major platform. And you should think through the distribution characteristics of the platform and decide if they are a good fit for your product and how best to mitigate the risks.

Finally, it is worth noting that some of the most successful startups grew by making bets on emerging platforms that were not yet saturated and where barriers to discovery were low. Today, the most interesting new platforms are probably Android tablets and emerging social networks like Foursquare and Tumblr. Betting on new platforms means you’ll likely fail if the platform fails, but also dramatically lowers the distribution risks described above.

Chris Sacca on the implied user contract

Chris Sacca nicely summarized today’s FB vs Google vs Twitter controversy:

It comes down to what each company has promised its users. Facebook promised its users their stuff would be private, which is why users rightfully get pissed when that line blurs. Twitter has promised users, well, that it will stay up, and that is why users rightfully get pissed when the whale is back.

Google has promised its users and the entire tech community, again and again, that it would put their interests first, and that is why Google users, rightfully get pissed when their results are deprecated to try to promote a lesser Google product instead.

It’s all about expectations.

Business development: the Goldilocks principle

Background: At Hunch, we switched our focus (“pivoted“) about 14 months ago from B2C to B2B. Over that time, we pitched over 500 potential partners, trying to get them to use and eventually pay for our recommendation services. This process had its ups and downs, but eventually ended well when – after 8 months of grueling diligence – eBay decided to acquire Hunch in what I expect will be a successful outcome for both companies. During this time, I got a crash course in B2B sales/business development. Here is the first in a series of blog posts based on what I learned.

Somewhat counterintuitively, the biggest problem we encountered when pitching Hunch technology to potential partners wasn’t that it wasn’t interesting or useful to them, but that it was so interesting and useful that they considered it “strategic” or “core” and thus felt they needed to own and not rent it. The situation reminded me of the “Goldilocks principle” sometimes referred to in scientific contexts:

The Goldilocks principle states that something must fall within certain margins, as opposed to reaching extremes. It is used, for example, in the Rare Earth hypothesis to state that a planet must neither be too far away from, nor too close to the sun to support life.

Basically, if your technology is “too hot” – or, in business-speak, “strategic” or “core” – then there are three likely outcomes:

1. The potential partner turns you down because they decide to build a similar product themselves. This happened to us a number of times. I think part of the reason was that there was a lot of market buzz around “big data” and machine learning which lead to the perception – rightly or wrongly – that those capabilities needed to be owned and not rented.

2. The potential partner says yes because your assets are so defensible they can’t replicate them. I’m sure Zynga considers the social graph strategic but at least for now they have no choice but to partner with Facebook to access it. It is very rare for startups to have this kind of leverage, but ones that do are extremely valuable.

3. The potential partner wants to own what you do, but thinks you have a sufficiently superior team and technology that acquiring you instead of replicating you makes more sense. This is only possible if the partner is large enough to acquire you and has a philosophy consistent with acquiring versus building everything in-house. (A common tech business term is “NIH” which stands for “Not Invented Here”. It refers to a set of companies that consider anything developed outside of their offices technologically inferior).

At the other extreme, if your technology is “too cold” – perceived as not useful by potential partners – you’re going to have a lot of frustrating meetings.  In this case, it is probably wise to reconsider whether there is actually demand for your product.

To build a long-term sustainable business, the best place to be is “just right” – useful to lots of partners but not so strategic that they are unwilling to rent it. This is where I wanted Hunch to be but we never got there.  Most companies I know use externally developed products (commercial or open source) for databases, web servers, web analytics, email delivery, payment processors, etc. These are often highly competitive markets but the companies that win in these markets tend to become large and independently sustainable. These “just right” companies – to extend the astronomy analogy – are the planets that support life.