From the last two financial crises to the current one, successful technology companies have used enterprise readiness as a foundation for survival and even growth in volatile markets. This article gives a brief overview of previous downturns, the implications for SaaS-based companies, and best practices.
The dot com bubble brought widespread use of the internet at the end of the 90s, generating prosperity for some and fostering countless new technology companies. When it crashed in 2001, it decimated the vast majority of startups.
In 2008, the housing and financial crises erased large fractions of personal and institutional wealth. With it, investors became reluctant to infuse cash into unproven startups. Enterprises cut spending and use of external vendors, mandating that employees innovate from within the confines of existing resources.
In 2020, the US exceeded the longest period of economic expansion in history at 126+ months. This phenomenon was not isolated to the US; it was experienced globally. Similar to the 2008 crash’s double effect on real estate and financial markets, the current economic decline is suspected to be a powerful reset. The impact of inflated markets recalibrating and the worldwide impact of the COVID 19 has been profound.
Academics categorize a crisis into stages, “…three phases within a crisis: the precipitation phase in which the potential for a crisis is created, the operational phase of the crisis, and the post-crisis phase.”
Effects of crises are widespread but have slightly different impacts, depending on the size of the business. Generally:
Startups—Many will downsize or even close. The best-of-breeds will use their learnings with initial customers and generate new revenue by targeting enterprise sales.
Enterprises—All will cut costs. Many will retrench. Some will see the downturn as an opportunity to seek market advantage.
Where will enterprises invest?
Because enterprises remain in the enviable position of having cash and a higher tolerance for risk during downturns, enterprises will invest in products that:
- Reduce costs while simultaneously speeding time to market.
- Deliver capabilities outside their expertise that are crucial to compete.
- Will drive immediate demand through completeness, usability, and scalability—aka are enterprise-ready.
Who has this worked for before?
Following the 2008/9 downturn, the numbers of new startups dwindled, yet some thrived by focusing on building products that would be highly appealing to the enterprise.
Cloudflare—Originally built to fight email spam, Cloudflare’s early products made websites both more secure and perform faster—even when not under attack—due to caching. This dual value proposition made Cloudflare’s offering extremely appealing to enterprises, allowing them to flourish during the downturn, resulting in a compelling IPO in 2019 and strong performance during the 2020 downturn.
Stripe—Launched just after the 2008/9 downturn, Stripe built a simple API that turned payment capabilities on with just seven lines of code. After a cut and paste integration, enterprises would not need to modify the code for years. The simplicity and scale of integration gave Stripe the confidence to approach and close major enterprise players such as Lyft, Salesforce, Shopify and TaskRabbit. Such a strong enterprise client base has brought Stripe’s valuation to $35B.
Zuora—Started in 2007, Zuora launched straight into an economic downturn. Zuora helps businesses transform from traditional pricing into subscription-based models—coining the phrase the, “Subscription Economy.” Several competing subscription billing platforms focused their product development and sales on Web 2.0 and startup clients. One of Zuora’s main differentiators is that they built their platform to serve the enterprise. By removing the need for enterprises to develop their own subscription billing platforms, Zuora sold to companies like TripAdvisor and Box Inc. Enterprise sales continued, as Zuora delivered accelerated time to market and powerful payment capabilities their clients lacked in-house. Their ability to attract and retain enterprise clients resulted in a strong IPO in 2018.
All three of these case studies share two commonalities: 1) the startups’ core technology/value proposition provided concrete value by being well outside the domain expertise of the enterprises they sold to, and 2) both products were robust, scalable and instantly deployable—again, they were enterprise ready.
What is enterprise ready?
Although interpretations vary, generally an enterprise ready product:
- Scale—stable and robust enough to be deployed to a large (e.g. millions) user base
- UI—is easy to use, and customizations are intuitive
- Privacy/Security—follows best-of-breed industry standards and directly aids users in regulation compliance
- Administration—oversight, and management are straightforward
- Integration—plugging into an existing product is relatively seamless (generally through APIs) and well-documented
- Support—Service Level Agreements (SLAs) are sufficient to quickly resolve any unforeseen issues
Build or Buy?
If becoming enterprise-ready is the answer, why not build internally?
Simple: time and cost. Growing companies are not well equipped to build features that lay outside of their core offering. Doing so requires investments of time, feature development costs, technical maintenance costs, and operational costs. This is compounded during market downturns when resources are especially limited. In these cases, it makes the most sense to integrate.
Are you enterprise ready?
As the current economic downturn progresses, the patterns detailed above will repeat themselves. It’s important to ask yourself, what can you do to make your product attractive to the enterprise?
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