Meet the New Enterprise Customer, He's a Lot Like the Old Enterprise Customer

Meet the new boss
same as the old boss
--The Who, Won't Get Fooled Again

Cause hustlers hit the block when police change shifts
New York, California different toilet, same s#@t
--The Game, Let Us Live

Every day I hear from entrepreneurs, angel investors and venture capitalists about an exciting new movement called "the consumerization of the enterprise." They tell me how the old expensive Rolex wearing sales forces are a thing of the past and, in the future, companies will "consume" enterprise products proactively like consumers pick up Twitter. But when I talk to the most successful new enterprise companies like WorkDay, Apptio, Jive, Zuora, and Cloudera, they all employ serious and large enterprise sales efforts that usually include expensive people some of who indeed wear Rolex watches. In fact, companies like Yammer who originally started with new age models have transitioned to more traditional enterprise sales approaches after experiencing the market without them. So what gives? Are all these smart people out of their minds? Has nothing changed since the early days of IBM? Some things have changed, but others are exactly as they were.

The Order of Adoption Has Changed

20 years ago, the technology adoption curve generally conformed to the following order:

  1. Government--specifically Defense and Intelligence organizations
  2. Businesses--with large businesses going first and smaller businesses adopting later
  3. Consumers

Today things have completely reversed. The latest technology goes to consumers first, followed by small enterprises that behave like consumers, then larger ones, then the military. The stunning reversal is one of many profound side effects of broad scale Internet adoption.

In the old days (before the Internet), no technology products were free, because distribution costs made it impossible to offer anything without some commitment from the end customer. As a result, new technology adoption generally started with the deepest pockets (the military) and worked its way down to the shallowest pockets (the consumer). Since the introduction of the Internet, many technology products can be distributed for free, and therefore have some free or free trial version. Interestingly, the order of adoption now follows decision-making speed rather than deep pockets. That is, consumers who can decide very quickly adopt first and the military--which has a notoriously complex decision making process--adopts last.

This reversal first initially stunned businesses. I remember dozens of CIOs at large companies being shocked that it was easier to find things on the Internet via Google than it was to find things in their own companies. We've seen the phenomenon repeat many times with the most recent being that it's far easier to get background information on complete strangers via LinkedIn than it is to know the skill sets and backgrounds of your co-workers.

Encouraged by the new trend, innovative entrepreneurs imagine a world where consumers find great solutions to help their employers in the same way that they find great products to help themselves. In the imaginary enterprise, these individuals will then take the initiative to convince their collegues to buy the solution. Through this method, if the product is truly great, there will be little or no need to actually sell it.

The actual enterprise works a bit differently. Meet the new enterprise customer. He's a lot like the old enterprise customer.

Meet The New Enterprise Customer

At the D8 technology conference, Steve Jobs made a statement about selling to enterprise customers that many missed but was extremely insightful and revealing:

"We want to make better products than them. What I love about the marketplace is that we do our products, we tell people about them, and if they like them, we get to come to work tomorrow. It's not like that in enterprise . . . the people who make those decisions are sometimes confused."

Why are the enterprise people so confused? Why don't they just quickly adopt the best products without requiring these complex sales processes?

Big Companies Don't Have Credit Cards

Purchasing anything in a large organization requires a rigorous justification process that generally culminates in a purchase order (PO). They do not allow their employees to use their credit cards to buy technology off of the Internet. In fact, at many companies, doing so and attempting to expense it after the fact is a fire-able offense.

If you work in a startup, you might wonder why large organizations don't just trust their people to make smart purchasing decisions. If an employee needs a new technology, why wouldn't the company just let him do the right thing? There are many reasons.

  1. The employee may not know what's appropriate in the context of the larger organization. The more people in an organization, the more diverse the set of needs. If the organization purchases, for example, social networking software it must attempt to take these needs into account.
  2. The company may already own the technology or a similar technology. If you work with 100,000 people, how do you know what the other 99,999 have already purchased? When EDS was a customer of ours, they had a $1B annual credit with Computer Associates. Computer Associates sells hundreds of products and is constantly developing new products (many of which can only be learned about via special meetings with the company). How would any employee at EDS possibly know about potential conflicts without a formal process?
  3. The employee may be corrupted by side incentives--If an employee of a large organization can make significant purchases without review or proper process, it's quite possible that he will be corrupted by an agent of a vendor. For example, an enterprise sales rep might buy a network engineer a new Porsche in exchange for a $10 million order.
  4. Public companies must comply with Sarbanes-Oxley compliant expense controls. Generally, when a company designs its expense controls, it must have in place a method for approving significant expenses before they are made. If a company lets an employee make significant purchase or even a small purchase that leads to a significant purchase on his credit card, that will violate the company's financial controls, because the purchase was not pre-approved.

As a result of these and other factors, large companies employ complex processes to ensure that major purchases make sense. These processes generally span many different organizations and stakeholders. It is not unusual for a purchasing decision to include people from many different IT departments (e.g. development, security, operations) and business functions (e.g. Finance, IT, Legal). The decision often involves technical decision makers, economic decision makers, and risk management decision makers.

Often these processes are so complex that almost nobody inside the company knows how they work. Excellent enterprise sales reps will guide a company through their own purchasing processes. Without an enterprise sales rep, many companies literally do not know how to buy new technology products. A top notch enterprise sales person not only knows her customer's process better than the customer, but will be skilled at characterizing the value of her product to each decision maker independently. This will involve product demonstrations, proof of concepts, complete return on investment analysis and even competitive positioning. The sales rep will work with the various constituents to help characterize the value proposition their management teams.

Large Enterprises Like Their Old Products

One thing that all large businesses have in common is that they have purchased a huge amount of technology over time. In fact, many of these technologies enabled the companies to become big in the first place. Naturally, the technology deployed in an enterprise varies widely in age. Some of the systems are outdated, complex, and downright arcane. Nonetheless, once deployed, enterprises develop great affection for the technology that runs their companies. They may complain about it, but like an old woman speaking of her spouse, the underlying love is far stronger than the criticism. And big companies expect you to love their old products too--by integrating with them.

But how do you figure out which old systems you need to integrate with and which ones you can afford to ignore? Like most things in the enterprise, it's complicated. Great enterprise sales forces sort through the myriad of existing systems and help guide their companies to find the essential few.

People in Big Companies Work to Live

If you work in the technology industry and particularly in Silicon Valley, you become used to employees who work tirelessly to improve their companies. It is not difficult to imagine one of these employees independently finding a new technology then championing it inside of her company simply because she wants her company to become great. Outside of technology and especially in very large companies, people generally don't do things like that. Most large company employees like to stay within the scope of their defined job. If they must make a choice between potentially advancing the efficiency of their employer via new technology or getting home to see their 8 year old's pee wee baseball game, it's not a difficult decision. As a result, expecting them to adopt your product with no help is probably not a good idea.

Final Thoughts

If you are selling to consumers or companies that behave like consumers, then moving away from the old channel models may make perfect sense. However, if you plan to sell to a large enterprise, keep in mind that the new boss is the same as the old boss.

Reprinted from Ben's Blog

Ben Horowitz is the cofounder and General Partner (along with Marc Andreessen) of the venture capital firm Andreessen Horowitz based in Menlo Park. Follow him at @bhorowitz, or get updates on his venture capital firm @a16z.

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