Crash Dev

I love Y Combinator founder Paul Graham's "Request for Startup" meme. In that spirit, here's an idea I've been kicking around with a few folks and would love to see happen.

The traditional enterprise software business is crumbling. Once-dominant vendors like HP, SAP and Oracle aren't going away anytime soon, but their iron grip on the minds and wallets of Fortune 100 C-suite residents is weakening daily.

When the New York Times -- not exactly the center of the tech reporting universe -- runs a piece like this one, you can be pretty sure the writing is on the wall.

What's driving this change?

Salesforce gets a ton of credit for setting the pace -- Force.com is the biggest and most vibrant platform and marketplace for cloud-based enterprise apps, and they've made bold acquisitions (e.g,. Heroku) and invested heavily in internal innovation projects (e.g., Chatter) to accelerate their leadership.

But really, monolithic, top-down enterprise software is dying the death of a thousand cuts -- with literally hundreds of agile SaaS vendors targeting thin slices of enterprise functionality, winning over end-users one at a time without ever paying a call on central procurement officers or IT gatekeepers.

This trend has only accelerated with the rise of "smart" mobile devices and the app store model of software distribution. Employees love their iPhones and iPads, and they expect to be able to use them at work as well as at home. BYOD (bring your own device) policies are slowly making their way from consumer-centric enterprises to the most security-conscious strongholds like financial services, cracking open another path into the enterprise for agile software entrepreneurs to wiggle through.

Individual enterprise users love all this beautiful, functional software -- and most SaaS vendors are smart enough to price their services so low that "official" approval channels can't block the purchase.  You can expect this trend not just to continue, but to accelerate, in coming years.

But even the most open-minded and forward-thinking enterprise technology managers have a few very legitimate beefs with the atomized, self-serve future of enterprise IT, including...

1. Data Fragmentation
   
   More than ever, data is the lifeblood of any organization -- real-time intelligence about business and financial performance, supply chains and competitive environments is essential to managing cost and risk in a connected age.
   
   What happens to that unified view of enterprise effort and productivity in a thin-sliced world of SaaS-based point solutions? You get lots of little data silos, big gaps in cross-firm visibility and a steady erosion of management insight and agility.
   
   
2. Security / Authorization / Permissions
   
   Clunky as they are, monolithic legacy enterprise solutions also help companies manage employee access to sensitive business data -- sometimes just for control reasons, but often for legal/regulatory compliance and customer-facing security commitments that need to be honored.
   
   Not only can disaggregated enterprise SaaS tools deny the organization a unified / normalized data store, they often also clutter the security and permissions landscape with isolated, opaque access control regimes that create headaches across IT user support, compliance and HR functions.
   
   
3. Human Performance + Innovation
   
   The "softest" cost of fragmentation in enterprise SaaS is arguably the most important: adding friction to information flows among team members, particularly across organizational boundaries like location, department or line of control.
   
   Maximizing performance in knowledge-work organization requires the greatest possible transparency into how people's time is being spent, who's working with whom on what, and how potential information gaps might be short-circuited by connecting individuals and teams in disparate parts of the company. Disaggregating enterprise data and workflow tools into departmental silos is virtually guaranteed to reduce total organizational effectiveness.

Note: this post is one of several drill-downs on the topic of why angel investing and early-stage venture investing are not just different in scale, but different in type.

The most exciting thing to happen in software investing over the past 10 years isn't Facebook, or Twitter, or even Instagram.

It's the total collapse in the cost of innovation.

Thanks to advances in open-source tooling and cloud-based infrastructure, companies that once required millions of dollars in capital can now be built by small teams of high-performing digital creatives for just tens or hundreds of thousands of dollars.

At the same time, the world's richest people have gotten even richer, creating an ever-larger pool of returns-seeking capital. (Access to high-risk investments like venture capital is generally limited to "accredited" or "qualified" investors, the same one-percenters that have reaped the greatest economic gains over the past decade).

So, as the cost of digital innovation has collapsed, the pool of capital available to finance innovation has exploded.

This mix would be combustible enough if the world were standing still.

But -- unlike the first wave of internet innovation, when the population capable of consuming digital services was relatively small -- this cycle is feeding a massive, global user base, where 2 of the 7 billion people in the world have internet access.

Not only is there a massive addressable audience for digital innovation, but a large and growing segment of those users have the internet with them all the time -- more than half of US cellphone subscribers owns a smartphone, and mobile tablet sales are projected to outpace PC shipments in about a year.

The cost of attempting digital innovation has never been lower, the pool of capital available to fund innovation has never been larger, and the economic value of a "winning" digital innovation has never been greater.

No wonder the market for "disruptive" digital innovation is blowing up.

The current surge of software entrepreneurs will create many viable businesses, with happy customers and growing revenues. But only a tiny sliver of them will strike the magical balance of talent, insight, effort and luck that produces breakout success.

What does all this mean for the professional venture investor, and how does her view differ from that of the "typical" angel investor?

In previous posts I've asserted that:

• Angel investors prefer deals where losses can be contained, while professional investors will "trade away" downside protection to maximize the potential for gains.

And

• Angel investors are more likely to attain "local maxima" while professional investors are structurally driven to seek "global maxima".

The world is awash in capital and the cost of innovation is rapidly approaching zero. Financial capital -- whether angel or institutional -- no longer matters.

Today the equation for breakthrough innovation is breathtakingly simple -- it has just two variables:

Angel investors -- for whom investing is a hobby but not core to their career or financial success -- rarely back up their money with significant allocations of personal time.

Professional investors are the opposite: each investment is an unrecoverable "silver bullet" fired from a finite pool of capital, and career success and compensation are directly tied to the accuracy and force of those shots.

Venture investors have three jobs: raising money, sourcing new deals, and helping portfolio companies win. Raising money is no longer the hard part (at least for investors who have a track record of producing returns). For the returns-maximizing venture investor, success boils down to outperformance in just two areas:

• Talent -- Doing everything in your power to ensure that the teams you invest in are the most gifted, ambitious, relentless digital creatives on the planet.

• Time --  Constantly triaging your schedule to maximize the positive impact you have on the teams and companies in your portfolio, particularly those that have the greatest odds of producing extraordinary returns for your investors.

Once a venture investment has been made, the *only* lever the investor can pull to improve the odds of a returns-generating outcome is to devote personal time to helping that company win. 

Any activity that accelerates progress, neutralizes threats or otherwise removes obstacles to a portfolio company's success is an activity worth spending time on. Any activity that doesn't fit one of those descriptions is a "tax" on your odds of success as a professional investor.

There are only 24 hours in a day, and once they're gone you can't get them back. Angel investors do good by deploying capital, but professional investors produce their biggest impact by allocating time.