Why The Enterprise + SaaS Space Needs To Build Companies Like The Consumer Space

Auren Hoffman wrote an interesting blog post this morning called “Why Angels Continue To Invest In The Consumer Space“.  The piece is pretty darn accurate, and you can’t deny it.  Sure, SaaS + Enterprise startups are getting angel funding, but nowhere near the rate of the Consumer Space.  I don’t have the stats to back that up, but I do have my nose to the ground when it comes to angel investing + funding trends.  It’s pretty straight forward to me: We need to fundamentally change the way enterprise/SaaS companies are built.  They need to be built like consumer Internet companies.

Why Angel Investing In the Enterprise/SaaS Space Isn’t “Hot”:

• The Products Aren’t As “Exciting”
  When it comes to investing, it’s a lot like showing your new toy or car off.  How often do you think the angel investors of facebook or one of the TechCrunch50 companies brag about their investments?  I’m going to say pretty damn often.  They are cool, they are hip, they are exciting.  They’re also easier to relate to.  Auren invested in Meebo. I’m sure it’s pretty easy to ask “Do you use meebo?”, and then get a yes from a lot of people.  Try that with “Enterprise Software For Human Resources” or something like that.  Quote from Dharmesh Shah, an awesome angel investor who gets it:
  “Consumer internet is just a lot more fun than enterprise software. Who wants to talk about enterprise intrusion detection for the Fortune 500 when you don’t have to?”

• The Usual Background of The Founders
  Most founders of enterprise + SaaS companies are coming from large companies like Oracle, SAP,etc.  instead of places like Y Combinator or dropping out of college.  This is an insanely different mindset.  A lot of redtape + “I Know It All” mentalities are  injected into the DNA of the company.  Most of these founders also have some sort of money in the bank.  It may not be a lot, but it lets them live off of more than the “ramen diet”.

• Never a “Flickr of Video”
  Enterprise + SaaS plays aren’t really that easy to understand.  There’s never a we’re like X company for X market ie- Flickr of Video, Facebook For Dogs, IM but Online,etc.  That makes it a lot harder to grasp the concept of what a company does.  It took us close to two years at Publictivity to be able to come up with something remotely similar to this: “Like Sharepoint, but if Apple made it instead of Microsoft”.  ERP, CRM, ECM,etc.  Seriously, it’s too complicated.

• It’s A One Way Conversation
  Angel investors need to do due diligence of some sorts.  They do this by calling customers and happy users.  Products like meebo, facebook, ustream, twitter, wordpress,etc. have FANATICAL users, and usually millions of them.  You can also use twitter search, technorati, google, and a whole lot more to see what people are saying.  It’s a one to many conversation.  With Enterprise software, the decision is made by a lone CIO with the input of a few others.  Do you think most users of the software inside a company are fanatical about it? I highly doubt you hear on twitter and technorati searches: “OMG, Oracle Beehive, this is the greatest software ever!!” Instead, the due dilignece pool is left to these CIO types.  This results in a real one to one conversation.

How The Next Generation of SaaS Startups Can Change This:

• Build a Product… And Fast
  Find a product to build, a need to solve, and build it fast.  I’ll admit, this is one piece of dogfood I wish we ate faster at Publictivity.  Build a simple iteration and get users.  You can add on the fancy features and more down the road.  To raise capital, a product means a whole lot more than a slide deck + some overglorified bios to an Angel.
• Find an Initial Audience That Will Love You
  You cannot be everything to everyone.  It’s just not doable.  Build loyalty and evangelism by going after a sector you can capture.  Overtime you can grow into new markets and establish a larger presence.  People who love you are an angel investor’s wet dream when it comes to due diligence.  By targeting an initial market, you can make this happen.
• Make A Simple Value Proposition
  What is the “delta”?  How was business conducted before you existed, and how will it be different now.  If you can simplify that into 2-3 sentences, you’re doing things right.  If it takes more than that, you won’t be able to close customers easily, let alone an angel investor who spends 2% of his time on this stuff.
• Focus on User Experience
  Some of the SaaS/Enterprise startups are just atrocious.  Sure, functionality matters and is important, but why can’t products be more beautiful like the consumer space?  If things are fluid and work well, convincing an Angel Investor with your product is going to be a whole lot easier.  If they don’t enjoy the experience, they probably won’t think you’re potential customers will either.
• Have Younger, Motivated, and Passionate Founders
  I’m sure I’ll get some shit for this statement.  I do not mean this in any offensive way possible.  At the end of the day, the younger out of college with no money founders are a whole lot more passionate and motivated.  They’re more in tune with what people want, and they can really interpret feedback.  Most of the great companies have come from founders in their early 20s for a good reason.  I would also advise: get some adult supervision from those in the industry who know how to run an enterprise company.
• Easy To Start Sales Cycle
  Go to most enterprise vendors and even a LOT of SaaS vendors.  Besides Salesforce, try to get me their pricing.  Try to sign up for a free trial.  I dare you, because it will rarely happen.  The sign up process is often weeks to months, not minutes.  If I see another company where you have to take a “demo tour webinar over the phone via webex” I’m going to jump out a window, a very high up window.   Most Angels will ask you “So how do you plan to get customers?”  If your answer is a 3 month sales cycle with intense legal contracts, custom SLAs, and more that comes off pretty scary.  If it’s clever promotion and being able to sign up for the service just as easily as facebook, then you’re doing pretty well.