Three weeks ago when I wrote How Software Can Be Resilient to Recession I was very careful using the “Big R” word – since then the bottom fell out, the doomsday-chorus started. On my personal blog I suggested we should Turn the Doom-talk into Constructive Business Model Ideas, and that’s what I intend to do now. Here’s the gist of my intro piece:
The Web 2.0 economy went sideways, focusing on things that were:
- useless (superpoke?)
- consumer-only
- ad-driven
Here’s what works (as has always worked) instead:
- go where the money is, and that’s businesses (“Enterprise” vs. consumer, even if it means small business)
- deliver value – useful functionality that improves business
- charge for it – companies actually prefer to pay for reliable, good service.
- SaaS : OPEX vs. CAPEX, Sell to User vs. Economic buyer
So let’s talk about that last part – how do you deliver software and get paid for it. Selling to the corporate world has just become a lot more difficult, if not impossible. The standard knee-jerk corporate reaction to any downturn is freeze, freeze freeze: hiring, travel, and spending on new contracts all get frozen. These blanket freezes are blind: it does not matter how innovative your solution is, how much it increases productivity, or -most importantly in a downturn- how much cost it saves, you can’t get in as a new vendor.
Fellow Enterprise Irregular Anshu Sharma’s advice to ISVs is to partner with anchor tenants, i.e. vendors already in contract with your target customer and try to get in under their umbrella. Sage advice, probably works for larger organizations, but partnering with the biggies can be quite painful.
What else then? You may want to revisit your pricing, and also how, and to whom you’re selling. Just as I was thinking about this post, we had a lively discussion in the Enterprise Irregulars group about Forrester’s report predicting the dramatic fall in price for Enterprise 2.0 applications. Jive Software came up as the obvious example: everyone loves ClearSpace, everyone hates the price.
Ironically, just as we were discussing how Jive’s prices will have to come back to Earth, news of Jive’s dramatic layoff came in: the company let about a third of their workforce go. Within minutes the CEO of competitor Atlassian announced they were still hiring, in fact he invited the ex-Jive team to check them out.
They are in the same market, so how come one fires while the other hires? Since I don’t have a crystal ball (or inside information), I can only speculate:
- Jive has experienced aggressive, VC-fueled headcount growth, which they now cut back preparing for the downturn, while Atlassian has grown organically, without any funding. (They like to say they are “revenue-funded”)
- Jive has the heavy Enterprise Sales model, which will hit a brick wall with the corporate freezes now, while Atlassian does not really sell: they let customers buy. Unlike Jive, they did not have to fire their Sales VP – they don’t have one.
But I don’t want to get into a Jive vs. Atlassian game here, especially since I really don’t know the details – let’s just stay on a general level for now. Update (10/18): Fellow Enterprise Irregular Bob Warfield asks: Why
Are Startups Running at a Level Where They Can Lay Off 1/3? I think it’s
clear that only the VC-funded ones (some? more?) are.
Another Irregular, Rod Boothby had a good writeup which is now two years old yet every word is valid: The Taxi Fare Secret. His key point:
Sell Directly to the End User at a Price They Can Expense…
How do End Users Pay in an Enterprise Setting?
If you charge $9/user per month, but bill for the whole group, the bill for 30 people would be $270. That requires sign-off, which requires approval, which gets you back to the CTO / CIO.
If you charge $9/user per month and make each end user pay their own way, then each person has to get the company to cover just $9 in expenses.
$9 is cab fare.
Taxi cab fare doesn’t require approval.
or… $9 might be just cheap enough for people to be willing to cover it themselves.
Very well said – and similar to my own experience of flying in below the radar screen, at prices that are expensable, not approvable. That’s the recipe for ongoing enterprise sales in a recession. Next we’ll look at revenue-generation on the consumer market, which will likely take us from the realm of taxi-fares to lunch-money … in fact cheap fast food.
