Three things for startups to learn about Enterprise IT

Over the past four years in startups, I have seen a lot of companies say things about the enterprise that didn’t seem quite right. It seems few startups can enter the enterprise, and I just want to point out three things from my past life building business cases for CIOs as an IT Strategy Consultant that could have companies have more success in the enterprise.

Enterprise IT has a lot of scale

When I first moved to San Francisco, one partner told me, “That’s great if you want to focus on small-scale tech.” If you are in the Bay Area, don’t take offense. That partner was right. When I was consulting, the smallest IT budget that I dealt with was over $200M annually. This means the annual operations of the smallest IT department that I dealt with was bigger than all but the Top 50 companies funded by YC ever! How big these organizations are is really hard to comprehend.

How important these organizations are is also really hard to comprehend. One of my clients had one system, where if it was down, would lose the company several million dollars per hour. A breach of this system would cost billions in damages. I also worked in specialty pharmaceuticals, where patients have long-term chronic diseases. The case study and fear for this industry was Genentech, which showed that one recall could bankrupt the company. The organization was incredibly risk-averse.

Value proposition needs to be high

In startups, it’s often understood that a product needs to be 10x better than the competition, and it’s understood that this number is arbitrary. However, for enterprises, I would look at this as more of a minimum bound. Since the risk to an enterprise is so high, the risk of moving data to a new product often exceeds any value that the new product offers.

In addition, there are real change costs to any new software. Even 15 minutes for all 10,000 American employees to learn a new HR tool would cost the enterprise $125,000 before any training begins. It really just gets more complicated and costly from here. Generally, the rule of thumb I had as a consultant was implementation costs doubled the cost of any software.

Finally, it was common practice in an IT organization that any new project had an ROI well over 200%. So while a new product may be 10 times better, we know the total cost of the software after implementation is only 5 times better (or an ROI of 500%). Then the question is if a 500% ROI worth the risk of putting the company’s data on a new system? Often it’s not. Saving 4 times the cost of a single app in an enterprise only increase operating margin by a fraction of a data point. However, any data breach could be catastrophic.

Target problem/users are key

With everything stated above, there are some clear constraints to what you can effectively solve in the enterprise.

Try not to touch critical data

“No one got fired from hiring IBM” is a common cliche. However, when it involves critical systems and data, it’s more like, “No company went bankrupt putting thousands out of work and costing millions of shareholders, for hiring IBM.”

What’s critical? Core banking systems, any automated system in a supply chain, EHRs, etc. If you are doing one of these companies where your system is better than anything else, build a full-fledged competitor because enterprise adoption will probably never take off.

Add capability, don’t reduce costs

This may be obvious but for a non-obvious reason. Adding a new system from a startup is a risky endeavor and the magnitude for these risks are huge. Any new software, especially from a startup, should be redundant to another system for a period of time. So the ROI calculation for a startup’s software really should not include the cost of existing software.

If I am offering a new fulfillment/shipping software, I cannot just be cheaper than the existing software, I need to offer something else better. My technology is the only technology that can ship envelopes by teleportation. 90% of your shipping costs are sending envelopes overnight to inform people as instantly as possible what needs to be done. With our technology, you can still ship envelopes overnight, but we are a much faster and cheaper alternative. Try it with your less critical information.

The business case for email sounds ridiculous today, but it was widely adopted after people were able to try it as something new. The last industry to adopt email is healthcare because they always deal with critical information. NOTE: I still have to fax, mail, or deliver forms to my doctor, but that’s a different issue.

Target users need to be familiar with writing a business case for their boss

It is critically important that your target user is familiar with writing and articulating a business case to their boss. If your target user is not used to or empowered to present a business case to their boss, it’s going to be a tough road. A business case, whether it is quantitative or qualitative, is the only way I have ever seen budget get allocated for anything in an enterprise. So it’s critical that your target user can clearly articulate to their boss that your software is at least 5 times better than the alternative.

One of the criticisms for a lot of enterprises is that they are slow and less innovative. Well, it’s also surprising how few people in an organization are actually empowered to bring a business case to their boss or know how to make one. Salespeople deal with business cases all the time and are constantly calculating how to make more. IT is also extremely familiar with business cases ever since “IT Doesn’t Matter” came out in 2003. However, most other individual contributors are not enabled to give a business case to their boss.

Conclusion

There is a constant request for enterprise startups. However, there are surprisingly few paths to go down if there is going to be any success in the enterprise. I hope entrepreneurs can take this guidance, get creative, and create better companies for the enterprise.