ZapThink Startup Insights: Sell “Bottoms-up” instead of Top-Down
ZapThink Startup Insights
Week of June 21, 2010
Interview: Neill Occhiogrosso- Highland Capital Partners
For this issue, ZapThink spoke with Neill Occhiogrosso, Principal at Highland Capital Partners, a venture capital firm focused on building companies in the communications, consumer, digital media, healthcare and information technology markets. Highland Capital Partners has 77 portfolio companies, 220 historical investments and 98 exits (IPO or acquisition). Neill is focused on disruptive business models in software and education.
Cloud Computing “Layers”
Just like pretty much all the investors we’ve spoken to so far, Neill sees Cloud computing as an obvious hot spot. However, Neill likes to define the space in three layers: Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS). SaaS continues to be a really fertile area for innovation because of the mostly subscription-oriented business model that simplifies purchase, deployment, and value realization. IaaS is focused mostly around some resource capability (storage, bandwidth, processing) with a business model that follows the transaction-oriented Amazon Web Services (AWS) model. PaaS focuses on virtualizing application and infrastructure to support further development. Good examples are Google App Engine, Sforce, Microsoft Azure, which are sold in subscription and transactional models. PaaS focuses on application development, whereas IaaS focuses on resource utilization. Dynamic provisioning is key to making all of these Cloud layers work.
Other areas hot in the cloud space include horizontal apps for Cloud / SaaS management. Neill cites Okta “Cloud Area Network” as an example.
Desktop virtualization is still hot, especially with the emergence of hardware that has more robust support for virtualizaton capabilities. Neill sees the fundamental purpose of desktop virtualization is to bring the enterprise IT organization in control of the desktop without the problems experienced in the past. With plenty of room for adoption, this is surely an area of continued interest.
Data center power consumption
The issue of power consumption in the data center is another area that’s a perpetual problem to solve. With ever-more emphasis on green IT initiatives and the desire to reduce cost and complexity of data center management, power management is sure to be a hot area of VC focus — pun intended.
Traditional Enterprise Software
The traditional enterprise software model is no longer a startup opportunity. Enterprise sales models that require feet on the street is no longer in vogue, with its long sales cycles, long installation cycles, and large upfront investments. The opportunity has come and gone and VCs such as Neill are no longer interested.
Enterprise collaboration with wikis, blogs, and real-time collaboration targeted at enterprises is a very tough market for startups due to it being a very crowded space with a low value proposition and confusing messages. Neill thinks that enterprise collaboration actually has a high value proposition, but it’s not as much of a tangible ROI, and few organizations have unlocked the value.
Advice for Enterprise IT Startups
Sell “Bottoms-up” instead of Top-Down
Startups looking to enter the enterprise should look for “bottoms-up” sales. Neill explains that this means that startups should get low- or mid-level users exposure to the application before they need to get senior-level buy-in. This means that the primary sales approach should be offering trials and freemium models as the best way to “force” upper management to consider an offering. The transformation now experienced in IT is that the power is in the hands of the end user to meet their IT needs. Mobile applications, consumer web applications, cloud, SaaS, and other trends have permanently shifted the balance of power to users and away from central management. Therefore, this means that the whole sales approach needs to change, too.