The State of Enterprise Software
The past three years have been a period marked by high valuations, a herd of unicorns, and giant funding rounds. For SaaS and cloud companies, VC investments reached dotcom levels and valuations reached a local maximum late last year. However, that period ended when the market took a hit during the first quarter of 2016 and stock prices dropped dramatically before a partial recovery in late Q1 /early Q2. Essentially, we experienced a significant market correction where valuations and startup expectations have reached a “new normal.” There may still be further corrections ahead (…or a “bubble pop” if that’s what you want to call it.) We can’t predict what future valuations will look like but we can say with confidence that we won’t be returning to 2015 values for quite some time. What does this mean for enterprise startups?
The startup climate and funding environment has shifted. The appetite for great companies is still here but we will see more conservatism in early stage financing. Strategic M&A will return to historic levels as the incumbents buy companies over the next 2–3 years. The market will no longer tolerate growth at all costs and companies with high burn rates, but the market will reward companies who build competitive moats, using cash strategically, and execute an effective go-to-market business model.
Successful startups always ride a wave bigger than themselves and their competitors. For example, Cloudera challenges Oracle in databases by riding the big data wave. Docker challenges VMware in cloud infrastructure by riding the inevitable container wave. By doing this, these market trends will float valuations and interest into the company.
I recently hosted Greyscale, an event for enterprise founders and CEOs that focused on the entire life of a tech company — from startup to scale up. We discussed practical information to help companies go from from product-market fit to go-to-market. We dug into topics around quickly scaling, the current market and funding environment, and IT trends. A wide range of speakers shared their strategic and tactical advice and today, all of the sessions are available on YouTube, as well as on podcast through Soundcloud, iTunes, Stitcher, Pocket Casts, and Google Play. Enjoy:
- Reid Hoffman and John Lilly talk about “blitzscaling” — that is, how to rapidly scale your tech company
- Dan Portillo on “debugging” the recruiting process so you can build a top-tier team
- Jeff Markowitz’s lessons on recruiting and hiring senior executives
- A panel with Workday CIO Diana McKenzie and Clorox CIO Manjit Singh on building partnerships with startups
- …and Amazon Web Services VP of Commercial Sales Mike Clayville on building a world-class sales organization
At the event, I gave the following presentation on the state of enterprise software. Let me know what you think!
*Since this presentation, we’ve already seen two major M&A deals in LinkedIn/Microsoft and Symantec/Blue Coat.
Here I use this analogy to ask whether technology is evolving to build Iron Man — a “suit of armor” that enhances us and makes us better, or Terminator — technology that ultimately replaces things like Ops. I argue that in the short term, AI bots and AI powered applications are building things to make customers better.
