Over the last few months the tech press and venture community have begun to take note of enterprise software, as though it were somehow something new and special. However, it has recently been revealed in a report on private tech companies with valuations over $100 million that around 80% of them are “enterprise” tech companies.
When we look back at the last 10 years or so of tech startups the vast majority of them have been focused on consumers, in spite of the fact that more returns are being provided by the enterprise. Part of this is because the nature of consumer startups is that they tend to be fairly binary outcomes (ie they’re either huge or they fail). This binary nature could very well be why venture capital follows them more closely as the mandate of venture investment is basically to get binary outcomes.
Putting the venture side of things to the side, why is it that the entrepreneurs go after the consumer side of things? Why are so many of our smartest engineers, designers etc putting their considerable brain power towards solving problems relating to photo sharing? When I think about the types of problems that are being solved on the consumer side compared to the enterprise side the conclusion I come to is consumer is the lower hanging fruit. I don’t mean that in terms of making money, I mean that in terms of creating a product that people will use.
Creating a product that a consumer will use, and that will spread widely among people is way easier to do than an enterprise product. The enterprise is harder, even if it is more rewarding financially. You have to deal with more issues that can stifle adoption of your product. In the enterprise you have to take security and privacy compliance much more seriously. It’s also much more challenging to convince someone to pay you for your software, although when they do pay they’re sure worth a lot more to your company.
Yes, enterprise software continues to be “consumerized” in terms of how the products are developed as well as the sales models to a degree, and this makes things much better, but that still doesn’t change the fact that the product creation process is much more complex.
Perhaps the most intimidating part of the enterprise software industry is the fact that the incumbents are so much more entrenched than the consumer side of the industry. There’s an expression that “nobody ever got fired for going with IBM” that should help illustrate this point well. However, this also means that the enterprise software industry has much more room for disruption as they have been resting on their laurels longer. Cloud software has eroded much of the stranglehold that Microsoft once had on consumers, and it will eventually do the same for the stranglehold they have on the enterprise.
I definitely have my fair share of “consumer” software ideas that I’d love to make if things don’t pan out with CareNetwork, but frankly I like the idea of tackling a complex problem that has an actual business model from the get go. Hoping to be acquired by one of the existing tech juggernauts isn’t a business model, even if it does happen to lots of companies every year.